The Wages of Sin

Lena Edlund, Joseph Engelberg and Christopher A. Parsons have a new paper on the wages of prostitutes:

Edlund and Korn [2002] (EK) proposed that prostitutes are well paid and that the wage premium reflects foregone marriage market opportunities. However, studies of street prostitution in the U.S. have revealed only modest wages and considerable risks of disease and violence, casting doubt on EK’s premise of an unexplained wage premium. In this paper, we present evidence from high-end prostitution, the so called escort market, a market that is, if not entirely safe, notably safer than street prostitution. Analyzing wage information on more than 40,000 escorts in the U.S. and Canada collected from a web site, we find strong support for EK. First, escorts in the sample earn high wages, on average $280/hour. Second, while looks decline monotonically with age, wages follow a hump-shaped pattern, with a peak in the 26-30 age bracket, which coincides with the most intensive marriage ages for women in the U.S. Third, the age-wage profile is significantly flatter, and prices are lower (5%), despite slightly better escort characteristics, in cities that rank high in terms of conferences, suggesting that servicing men in transit is associated with less stigma. Fourth, this hump in the age-wage profile is absent among escorts for whom the marriage market penalty is lower or absent: escorts who do not provide sex and transsexuals.

The paper also provides some interesting charts. The figure below plots the mean hourly wage by age group among escorts who provide sex to their clients, escorts who do not (e.g. massage only) and escorts who are transsexuals.

The next figure plots the mean hourly wage among escorts who have sex but are located in cities with few conferences. (Conference cities were extracted from the National Business Travel Association’s (NBTA) 2004 survey, “Business and Convention Travelers Report.”)

Labor regulations in a dual labor market economy

How do labor regulations effect a dual labor market economy? Rita Almeida and Pedro Carneiro from the World Bank study this question in their new working paper, ‘Mandated benefits, employment, and inequality in a dual economy.’

This paper studies the effect of enforcing labor regulation in an economy with a dual labor market. The analysis uses data from Brazil, a country with a large informal sector and strict labor law, where enforcement affects mainly the degree of compliance with mandated benefits (severance pay and health and safety conditions) in the formal sector, and the registration of informal workers. The authors find that stricter enforcement leads to higher unemployment but lower income inequality. They also show that, at the top of the formal wage distribution, workers bear the cost of mandated benefits by receiving lower wages. Wage rigidity (due, say, to the minimum wage) prevents this downward adjustment at the bottom of the income distribution. As a result, formal sector jobs at the bottom of the wage distribution become more attractive, inducing the low-skilled self-employed to search for formal jobs.

Wages up since start of recession

The most recent unemployment report shows that hourly wages increased in October by 5 cents. During the same period, however, unemployment rose from 9.8 percent to 10.2 percent.

Below is a comparison of inflation-adjusted weekly pay during the three worst recessions of the past forty years (via David Leonhardt):

Two months following the start of the mid-1970s recession, real weekly pay fell 7 percent. During the early 1980s recession, real weekly pay fell 4 percent. The current recession, on the other hand, has seen an increase in pay of about 1 percent.

Analyzing the Extent and Influence of Occupational Licensing on the Labor Market

In their new paper, Morris M. Kleiner and Alan B. Krueger (NBER) analyze the extent and influence of occupational licensing on the labor market. Not surprisingly, the authors find that licensing pushes wages up:

This study examines the extent and influence of occupational licensing in the U.S. using a specially designed national labor force survey. Specifically, we provide new ways of measuring occupational licensing and consider what types of regulatory requirements and what level of government oversight contribute to wage gains and variability. Estimates from the survey indicated that 35 percent of employees were either licensed or certified by the government, and that 29 percent were fully licensed. Another 3 percent stated that all who worked in their job would eventually be required to be certified or licensed, bringing the total that are or eventually must be licensed or certified by government to 38 percent. We find that licensing is associated with about 14 percent higher wages, but the effect of governmental certification on pay is much smaller. Licensing by multiple political jurisdictions is associated with the highest wage gains relative to only local licensing. Specific requirements by the government for a worker to enter an occupation, such as education level and long internships, are positively associated with wages. We find little association between licensing and the variance of wages, in contrast to unions. Overall, our results show that occupational licensing is an important labor market phenomenon that can be measured in labor force surveys.

Since licensing restricts supply (employees) without an altered demand, the price (wage) of the product (licensed employee) subsequently increases.

‘Wages Grow for Those With Jobs, New Figures Show’

According to the New York Times:

For the first time since perhaps the Great Depression, it seemed possible that average hourly pay would actually begin falling, even before inflation was taken into account.

But that’s not what has happened.

Wage growth has picked up in the last several months, according to two different government surveys. You don’t hear or read nearly as many stories about pay cuts these days. Even though unemployment has reached its highest level in 26 years, most workers have received a raise over the last year.

That contrast highlights what I think is one of the more overlooked features of the Great Recession. In the job market, at least, the recession’s pain has been unusually concentrated.

And it hasn’t been concentrated in the typical way. Nearly every region and every demographic group has indeed been affected. But the pain has been concentrated within groups.

Teachers Pay Around the World

The graph below is part of the The Organization for Economic Cooperation and Development’s statistics on education around the world released on Tuesday. The average American public primary-school teacher with 15 years of experience and the minimum amount of training earns $46,633 annually. This is compared to the OECD average of $39,007:

Catherine Rampell from Economix explains that,

Comparing each country’s teacher salaries to the wealth of that country makes United States educational salaries appear lower. In the United States, a teacher with 15 years of experience makes a salary that is 96 percent of the country’s gross domestic product per capita. Across the O.E.C.D., a teacher of equivalent experience makes 117 percent of G.D.P. per capita. At the high end of the scale, in Korea, the average teacher at this level makes a full 221 percent of the country’s G.D.P. per capita.

Where the Fortune 50 CEOs Went to College

Post has changed locations. Click here to read this post.

Does an Ivy League Education Amount to Higher CEO Pay?

No, according to a study undertaken by Indiana University professor Michael Sampson-Akpuru last year:

The issue of high Chief Executive Officer (CEO) compensation has attracted much attention among researchers in recent years. One study reports that the average CEO salary for an S&P 500 firm in 2006 was $14.8 million. In addition, many Ivy League graduates move on to the executive offices of America’s top corporations after having spent over $50,000 per year on tuition. This investigation examines whether having a degree from an Ivy League school is associated with higher CEO compensation. I find that, after controlling for other factors, an Ivy League education is not associated with higher total compensation. Further investigation shows that having an Ivy League degree is associated with marginally higher salary and marginally higher “other” income, but is also associated with significantly lower stock-based compensation.

Thomas Sowell: Hollywood Economics

Thomas Sowell writes,

It is not really news that Hollywood is still producing anti-business movies, but there is a certain irony in it nevertheless.

Although these movies tap a certain envy and resentment of corporate wealth, that large corporate wealth comes from far more modest individual amounts of money from about half the population of the United States, which owns stocks and bonds — either directly or because money paid into pension funds or other financial intermediaries are used to buy stocks and bonds.

The irony is that the average Hollywood star who is making anti-business movies is far wealthier than the average owners of those businesses, who are half the population of the country.

The Los Angeles Times refers to documentary “films” that are “critical of corporate power.” But just what does this vague word “power” mean when it comes to businesses?

Click here to continue reading.

Random Thought

When someone supports an increased minimum wage and another supports a reduction in poverty, they are supporting two separate objectives. When someone supports an increased minimum wage in order to reduce poverty, he is supporting two contradictory objectives.