Compensation Insights Inspired by Insomnia

Hoisted (and edited) from a comment on this post based on almost two years of working mixed day/night/weekend shifts .

1. Mandatory 1.5x pay on all federal holidays. Holidays are now largely for office workers, so the workers in retail, hospitality, etc. should at least get some compensation for not being able to spend time with their friends and family.
2. Mandatory 1.5x pay for overnight hours (2230-0530). Overnight work has serious negative health effects.
3. Increased overtime as hours go up - 1.75x at 50 hours, 2.0x at 60 hours, 2.5x at 70 hours, etc. The effects of working additional hours are not linear.
4. Every business must declare one calendar day per week a "day of rest" and pay 1.5x on that day. (Yes, I am attempting to skirt establishment issues here.) Weekends are a good thing and people who can't enjoy them should be compensated. Optionally, businesses can declare themselves 24-7 operations and pay 1.25x on both traditional weekend days.
5. Effects should compound - day of rest + overnight = 2.0x.

Those policies would have the following effects (that I can think of right away):

1. Fewer 24/7 stores and restaurants.  This will inconvenience some people.  On the other hand, there will be fewer sleepy workers and customers on the road.  This will reduce premature deaths.
2. Fewer late night bars.  This will reduce premature deaths at the price of offending various barflies.
3. Fewer 24/7 factories.  This will cause a few to move to other, less regulated countries.  On the other hand, there will be fewer sleepy workers on the road as well as performing potentially dangerous tasks on their shift.  This will reduce premature deaths.
4. Fewer commercial drivers (long-distance truckers, local delivery, couriers) on the road.  This will increase transportation costs across the economy but  will reduce premature deaths.
5. Fewer late night/early morning flights.  Airfare costs will increase a bit, but late night and early morning noise pollution will decrease.  Most airlines run their domestic flights 0600-2359 (in a given time zone) so the effects on actual flights will be small.  The cost increases will mostly come from ground staff wages.
6. Less overnight road construction.  This will inconvenience a lot of drivers as more lane-miles will be blocked during the day and may lead to more accidents.  The effects on the safety of workers will probably be an improvement - fewer driving at odd hours, more permanent barriers set up, and better lighting on the work being done.
7. A significant increase in hospital and nursing home costs.  These are 24/7 facilities without much room to decrease staffing.  Some night shift premiums are probably already offered, but aren't 1.5x daytime shifts.
8. Some increase in first responder costs.  Most first responders (police, fire, EMS) are unionized and probably already have night shift premiums negotiated, but not as high as 1.5x.  However, having fewer vehicles on the road overnight should allow for somewhat decreased first responder staffing.

A few comments:

1. I chose 2230-0530 to allow for two full-time non-overlapping shifts.  Capacity utilization matters both to individual businesses and to economies as a whole, for better or worse, at least until sleepless robots relieve us all from the need to work.
2. Weekends are complicated, mostly due to the first amendment.  I think my solution is legally workable in the US, if not entirely pleasing.  If the first amendment did not exist, I would just require mandatory 1.5x pay on Sundays.
3. There are ways employers could game the rules (trying to force more drivers to become contractors, for instance) but if there is the political will to implement my suggestions, there will also be the political will to remedy any attempted circumventions.

Has the Jury Reached Its Verdict?

The hypothesis: austerity now will increase growth rates because businesses will invest because they will be confident that interest rates (or inflation, or something) will remain low.

The counter-hypothesis: austerity now will reduce growth rates (which can go below zero) because the government will spend less and tax more, which will cause businesses to be uncertain about having enough demand for their products, and thus to hold off on investments.

The test: austerity.

The results: Austerity has reduced growth because the government is spending less and taxing more, which has left business uncertain if they will have enough demand for their products and causing them to hold off on investments.

The verdict: suck it, austerians.

Asshole, now with Mendacity

Larry Summers, ladies and gentlemen.  Take it away, Felix.

Contraction In Action

Reports out of the UK last week indicating that the GDP had contracted in the 4th quarter surprised just about no one who understands economics.  As promised during the campaign by the Conservatives (I'm not sure about the Liberal Democrats), the coalition's budget made significant cuts in government spending.  And as predicted, cutting government spending (demand) when there is insufficient private spending (demand) to make up for it led to a significant slowdown.  The Tories and their apologists in the UK financial press tried to blame it on the weather, but the only month affected by the unusual snows was December.  Either the snows were so bad that the economy contracted by a drastic 3-4% (they weren't) or the economy was very, very weak before the weather hit.  The latter seems much more likely, as the snows didn't result in widespread property damage or loss of life.

While it hasn't run its course, the spending cuts in the UK have created what is about as close to a single variable experiment as can be had in the field of macroeconomics.  The country is not much of an oil importer and so it was relatively unaffected by the recent prices increases.  The economies of the rest of Europe (overall, though not in some countries) and the US are growing, so export demand hasn't changed.   And there were no internal shocks such as a bank run or stock market crash.  The only major change was spending cuts.  Not all of them have hit, and there may be some scrambling to lessen the amounts of the upcoming cuts.  Still, the reduction in government spending will end up being significant.  We will be able to be certain about the result of the experiment after the first quarter of 2011.

Update 2011/2/26 (originally posted 1/30): It turns out that the numbers were even worse than initially reported - the UK economy shrunk by 0.6% in the fourth quarter.  That translates to an annualized rate of ~2.4%, which is how the numbers are reported in the US.

A Willing Suspension of Disbelief

I've been slowly working my way through a textbook by a certain hack economist, and I was inspired to make these slides.

The basic idea is that in a hypothetical "free" market the supply and demand will find an equilibrium at a certain price. Movements in the "curves" will change the equilibrium price. Changes might be caused by increasing raw material costs, more efficient production methods, waxing and waning popularity, appearance or disappearance of competing producers, or other factors.

In reality the supply and demand curves are not linear, and there is always some kind of tax in the mix. Demand or supply is considered elastic if it is very sensitive to price changes. Inelastic supply or demand is the opposite.

This is a terribly simplistic model of the global oil market. Demand is inelastic at lower prices and elastic at higher prices. Supply is the opposite. There isn't one production cost for oil because there are many sources, each of which required different levels of investment to develop. Ghawar, the world's largest field, has extremely low production costs, meaning the Saudis can make money even at very low prices. Tupi, the new ultra deepwater find off the coast of Brazil, is still being analyzed for viability and may never be put into production. On the consumption side, there isn't one price to end users due to different contract lengths and different levels of taxation. Venezuela, a major producer, takes the rather stupid step of subsidizing gasoline prices, pushing up demand which reduces the amount available for export. Norway, another major producer, was the poorest Scandinavian country until oil was found in the North Sea. Given their history, Norwegians are very conservative with their oil use and oil revenues.

Here's the basic argument for the gas tax: current prices don't reflect true costs. Some of the costs are immediately related to the production of oil, such as spills, or its consumption, such as smog. Other costs have a less direct connection, such as 9/11 or the Iraq War, or won't be felt for a while, such as global warming or potential scarcity. Costs that are not reflected in the price of a good or service are called externalities, and oil use has a lot of them. Raising the gas tax would "price in" some of those externalities, even if the revenues didn't flow directly towards solving them.

It's a no-brainer to me and other people who care about the future.