Comments on economics, mystery fiction, drama, and art.

Monday, January 28, 2008

Union Membership--Good News? Or Not?

Both Brad deLong and Matt Ysglesias have posts referring to the rise in union membership from 12% of the labor force (in 2006) to 12.1% (in 2007). (Brad's post is, essentially, a link to Matt's).

I'm getting around to this somewhat late, but let's not get all giddy here. The BLS data indicate that union membership in the private sector fell from 7.5% to 7.4% between 2006 and 2007. And that it also fell in the public sector, from 36.2% to 35.9%. The only way for this to lead to an increase in the overall rate of unionization--from 12% to 12.1%--is for the public sector's share of total employment to have increased. (Even looking at the percentage of workers represented by unions--not all of whom are union members--that also fell in the private sector, from 8.2% to 8.1%, and in the public sector, from 40.1% to 39.8%.)

So declining union membership both in the public and in the private sector becomes a story about rising union density. Both god and the devil are in the details, and the details do not support the story.

Thursday, January 17, 2008

Why Do People Think Rising Player Salaries in Baseball Drive Ticket Prices Up? A Lesson in Framing the Narrative

This is another attempt (as in my price gouging post) to look at the way people frame things, and how those frames make a huge differences in the narratives that people see applying to particular situations.

Here’s my base situation. Sports economists look at the tremendous increases in earnings of professional athletes and conclude: “The consumer demand for viewing (etc.) professional sporting events has increased. This increase in demand leads to an increase in the demand for talent. Given the restrictions on entry, this increase in demand for talent drives up the earnings of athletes. But, also, the increase in consumer demand for the sport drives up ticket prices. It is, therefore, a fallacy to look at rising ticket prices and rising earnings and conclude that rising earnings drive rising ticket prices. It is, in fact, just the reverse—rising ticket prices drive higher earnings.”

But that’s not the “popular” narrative. And, not infrequently, the popular narrative differs from one sport to another.

Consider the case of baseball. The popular narrative goes something like this: “An aggressive and well-led union has managed to get a group of divided and incompetently-led owners of baseball teams to accept free agency and salary arbitration which have combined to drive up player salaries. This has led to increased costs of running a baseball team, and owners have passed the burden along to their fans.”

To sports economists, this is nonsense. But it is a narrative that has a lot of power. Because it conforms to other situations that people are familiar with, and in which a similar narrative might very well apply. Consider, for example, the case of the US automobile industry. It’s not hard to accept the argument that, among other things, an aggressive and well-led union won wage and benefit increases from US auto companies that drove up costs, and thus drove up the prices of US-made cars. And the same for the steel industry.

Because the auto/steel narrative makes sense, and because it, in fact, aligns fairly well with reality, people are willing to generalize it to a situation where it might not fit. For example, if we take the next step in the auto narrative: “These rising car prices, coupled with a permissive system for allowing imports, led to an explosion of sales of imported cars. The result was the decline in the domestic auto industry.” (Substitute “steel” for “autos” as needed.) One can disagree with pieces of that narrative (and I do), but it’s clearly not an extension of the narrative that we could apply to major league baseball. Rather than “imported” baseball taking over in the US, US baseball is increasingly attracting the better players from the Japanese and Korean leagues, after we had already drawn the best of the best from Latin America.

(Oddly, people tend not to apply the baseball narrative to football or basketball. Here, the popular narrative goes something like “A charismatic and brilliant sports commissioner—Pete Rozelle, David Stern—created new popularity, and new markets, for football (or basketball), and revenue exploded. By imposing salary caps, these sports held salaries down, but the leaders in these sports wisely shared some of the additional revenue with players, so salaries did rise, but not enough to be threatening.”)

My own contention would be that the powers of the commissioners of the various sports have not been a truly determining factor. Sooner, or later, the rapid growth in demand for professional sports was going to have the same effects on all of the sports that have grown in popularity—football, basketball, tennis, golf, soccer, auto racing (at least for NASCAR) and, yes, baseball. (Hockey, in the US, at any rate, seems not to have shared in the boom.)

So why the differences in the narratives? At least in part, it’s a result of the way in which the media have framed the stories. Baseball’s leadership has looked bumbling and incompetent, compared with the other major sports. So the media have created a narrative that placed that bumbling at the center of the narrative, instead of realizing that it hasn’t been all that important. And I say that with apologies to the detractors of Bowie Kuhn.

Tuesday, January 15, 2008

Toll Roads Once Again

A couple of years ago, we all had a very lengthy discussion about the potential effects of toll prad privatization (in Indiana, primarily, but also touching on Illinois). One thing that we all somehow managed to miss (as I recall, and I'm not going back to check), is that, if tolls rose, particularly on trucks, that traffic would divert to freeways. Well, now comes some evidence. Peter Belker and Michael Swan have looked at traffic on the Ohio Toll Road. Their data come from the early 1990s, in which Ohio raised tolls to pay for construction, and then lowered them. This allows them to measure the effect of increased tolls (although the effect of permanent increases may be different, and the effect of construction congestion may also be relevant. They have estimated that the profit-maximizing toll (about three times the toll charged by the public toll road) would divert about 40% of the truck traffic to non-toll roads. This diversion to roads that are more likely to be two-lane has a number of consequences--traffic slows down, goods take longer to transport, and accidents increase with significant increases in deaths, injuries, and property damage.

More grist to the issue of privatizing toll roads, or, for that atter, simply increasing tolls while leaving the roads under public control.

Take a look at the link, or check out the discussion at Mark Thoma's place.

UPDATE: Take a look at Alex Tabarrok's comments at Marginal Revolution.

Monday, January 14, 2008

Price and Quality

An interesting article at Stephen Shankland's Underexposed blog, reporting research showing that people rate a wine priced at $90 per bottle higher than the same bottle of wine priced at $10. (It's worth noting that the test subjects don't know that it's the same wine.) Shanklnad says, "The research, along with other studies the authors allude to, are putting a serious dent in economists' notions that experienced pleasantness of a product is based on its intrinsic qualities. "

Well, except that I'm not sure all--or most--or many--or even only a few--economists would agree that the perceived quality of a product is based solely on the "intrinsic qualities" of the product. Thorstein Veblen argued a long, long time ago that one indicator that people use of quality is price; this is likely to be truer when product quality is difficult to judge (and, given the results of wine-tastings--and the differences in judgments between experts--the "intrinsic" quality of wine is, perhaps, not something to hang one's hat on).

I think that many--most?--all?--economists would agree that consumers do use price as an indicator of quality when other quality markers are obscure or difficult to evaluate. And so I see this as conformation of an economic consensus, rather than a serious dent in anything.

Thursday, January 10, 2008

Retail Sales

The data on retail sales for the 2007 holiday season are out, and it's not pretty. Here's what it looks like:

Kohls--DOWN 11.4%
JCPenney--DOWN 7.5%

The Gap--DOWN 6%
Target--DOWN 5%
Macy's--DOWN 1.1%

And at specialty store:

Hot Topic--DOWN 6.2%
American Eagle Outfitters--DOWN 2%
Abercrombie & Fitch--DOWN 2%

(Data for Sears, K-Mart, Best Buy, and Circuit City, among others, are not available in the New York Times article I'm using, nor in what I could find in the Wall Street Journal.)

The only sort-of bright spot? Wal-Mart, UP 2.4% (excluding gasoline; 2.7% overall).

All of that's without adjusting for inflation, though. The question is: How do we best adjust for inflation?

According to BLS data, the overall CPI rose 4.3% between November 2006 and November 2007 (data for December are not yet available). But, if we want to look at retail sales, and particularly holiday-centered retail sales, the overall CPI is probably not the best measure. After all, it includes food (+4.75%), housing (+3.05%) and energy prices (+6.07% for home energy sources; +37.03% for motor fuels), which are not particularly relevant for figuring out what happened at The Gap. And the prices of services (including, notably, health care services--+4.98%). So what would be relevant for holiday sales? Try these:

Apparel: -0.41%
Video and audio equipment: -0.95%
Sporting goods: -1.04%
Photographic equipment: -3.93%
Toys: -6.14%

Yep, the prices of what would seem to me to be the major categories of holdiay gift-giving all fell between 2006 and 2007, some (photo equipment and toys) by quite a lot. (The unweighted average price decline of these five categories of things is 2.49%.)

Now, for many of the retail chains we might look at (The Gap, Penney's, Abercrombie and Fitch), apparel prices are more relevant and the others are less relevant, but we can take a shot at trying to adjust for inflation, by subtracting the percentage change in price from the percentage changes in sales. If we do that, here's what we get:

Kohls--DOWN 8.9%
JCPenney--DOWN 5.0%
The Gap--DOWN 5.6%
Target--DOWN 2.5%
Macy's--DOWN 0.7%

Hot Topic--DOWN 5.8%
American Eagle Outfitters--DOWN 1.6%
Abercrombie & Fitch--DOWN 1.6%

Wal-Mart--UP 3.7%

(I used a crude adjustment for Kohls, Penney. Target, and Macy's--the average price decline in the group of products of 2.5%; for the other stores, except Wal-Mart, I used the 0.4% decline in apparel prices. For Wal-Mart, I added back in what happened to food prices, since food is a major part of what they do, and so estimated an overall 1.3% decline in prices for Wal-Mart.)

These results still say it was an awful holiday period for major retail chains. To my mind, this makes the chances that we are heading into (or are already in) a recession much greater.