Robert Whaples and the Modern Principles

A blog on my teaching with Modern Principles of Economics by Tyler Cowen and Alex Tabarrok

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Labor Markets, God and Mammon

Posted by Robert Whaples on September 22, 2009

Yesterday, I finished Cowen and Tabarrok’s international trade chapter and began a discussion of chapter 14 on labor markets.  In a nutshell the chapter argues that 1) just as in other markets the price of labor is largely determined by the forces of supply and demand but that 2) labor is special in some important ways — e.g. workers care about how they are used, but products rarely do.  To me the highlight of the chapter is the discussion of compensating wage differentials — explained both in terms of supply/demand forces and using a graphic of a scale combining different packages of wages and fun to balance the overall compensation and attractiveness of similar jobs.  I framed it this way in class: Accountants and clergy are both well educated and intelligent, yet we pay accountants a lot more than the clergy.  Is this because we care more about money than about God?  Ironically, the compensating wage differential argument turns this answer on its head — the clergy are compensating by social prestige, the sense of doing something important, knowledge that they’re working for a good cause, etc. — thus they get paid less BECAUSE we collectively care more about God than money.  The chapter’s discussion of discrimination is also very thought provoking — especially the section about why discrimination isn’t always easy to identify.  I’ll cover this in class tomorrow and start with the observation that left-handed male college grads earn about 15% more than their right-handed colleagues.  Should we jump to the conclusion that this reflects discrimination?  Probably not.

Follow up note: Today I read the Wikipedia article on the episode about “Spock’s Brain” — a weird episode that I some how missed back in my youth.  Apparently it isn’t only economists who think it was pretty lame.  (While I was there, as a public good I added a note about C&T’s criticism of the episode.)

Posted in Ch 14 Labor Markets | 12 Comments »

Gains from Trade

Posted by Robert Whaples on September 21, 2009

On Friday I covered Chapter 8 of Cowen and Tabarrok’s Micro split (18 in Macro) — International Trade.  My previous textbook handled trade in Chapter 2, but I now think it goes just as well later because putting it in the eighth chapter means that it can be seamlessly integrated into the supply and demand framework.  Figures 8.1 and 8.2, which show imports and tariffs using supply and demand, work very well and build on the strengths that students are developing in this part of the course.

The other big difference from my old textbook is that C&T don’t draw a production possibilities frontier in working through their comparative advantage example.  I’ve always liked the ppf approach, since it shows so graphically how rearranging who does what allows both parties to jump above their old constraints and get a free lunch from specializing and trading.  Slave of tradition that I am, I brushed off my handout on Peter and Mary trading fish and bread and introduced the ppf anyway — it only takes 10 minutes.

A picture is worth a thousand words — and a graph is worth, perhaps, 10,000.  The highlights of the International Trade chapter are the picture of Mr. Spock and quick dissing of  Star Trek for the blasphemous idea that even Spock’s brain could run a modern economy– could it have run an ancient economy or a medieval one? I doubt it — and Figure 8.4 which shows plain as day how child labor force participation falls with GDP per capita.  I used this graph as a springboard for discussing the meaning of “exploitation” which segued nicely into our discussion of Labor Markets in Chapter 14.  More on this tomorrow.

Posted in Ch 08 International Trade and Globalization, Ch 14 Labor Markets, Ch 18 International Trade and Globalization, _MACRO | Leave a Comment »