Larger Firms Create More Inequality

By Ramsey Barghout

Recently there has been a big debate about inequality in the rich world. Most economists have been putting forth the idea of increasingly unequal distribution of wealth, while paying less attention to the growing disparity in wages over the past years. Yet that disparity is growing. In America, for instance, “the best-paid 1% of workers earned 191% more in real (inflation-adjusted) terms in 2011 than they did in 1980, whereas the wages of the middle fifth fell by 5%. Similar trends can be observed all over the world, despite widely varying policies on tax, the minimum wage and corporate pay” (Shaffer 4).

One of the major reasons for this phenomenon lies behind the importance of technology. Modern economies require more skilled workers, which raises the pay premium they can demand. In addition, economists have recognized that economies of scale allow workers at bigger firms to be more productive than those at smaller ones. That, in turn, allows the bigger firms to pay higher wages. This should not, in theory, cause a rise in inequality. If, for example, the CEO and cleaner at a larger firm are both paid 10% more than their corresponding positions at a small firm, the ratio between their wages—and thus the overall level of inequality—should remain the same.

But studies show that the benefits of scale are not shared equally among all workers. Using data on wages at British firms, they divide workers into nine groups according to how skilled they are. Over time, they found that the proportional difference in wages between the groups grows as firms get bigger. This trend is driven entirely by a rising gap between wages at the top compared with the middle and bottom of the distribution. This is similar to the trend in income inequality in America and Britain as a whole since the 1990s, when pay for low and median earners began to stagnate.

Economists suggest two possible explanations. First, larger firms should find it easier to automate tasks than smaller ones, and may therefore find it easier to resist demands for pay rises from relatively unskilled workers who could be replaced by machines. In addition, entry-level workers in the middle of the income distribution may be willing to accept lower pay from big firms since in the long run the chances of getting a promotion are greater than at small firms.

Only the executive workers at a firm, who can extract a bigger premium for their skills and experience, enjoy the benefits of working at a large company. A cleaner at a single shop does the same sort of work as those at a large chain. But managing a multinational firm such as Walmart requires a different—and much rarer—set of skills than that required to run a corner store. Over time this pushes up the salaries of the top brass at Walmart compared with corner-shop managers.

Economists find that the relationship between the growth in the size of companies and the level of inequality holds across the rich world. They looked at data from over the years on wages and the size of largest firms for 15 countries in the OECD, a club mostly of rich countries. The relationship between rising levels of income inequality and the size of firms was strong.

This effect is particularly noticeable in America and Britain, where firms have grown rapidly in recent years. In America, for instance, the number of workers employed by the country’s 100 biggest firms rose by 53% between 1986 and 2010; in Britain the equivalent figure is 43.5%. On the other hand, in places where the size of firms has not changed much, such as Sweden, or where it has shrunk, such as Denmark, wage inequality has grown much less. Part of what is perceived as a global trend towards greater disparity in wages may actually be the result of the biggest firms employing a greater share of workers. (Swanson 2)

If governments want to resolve the inequality big firms are causing, reforms to the labor market are unlikely to help. Instead, they will have to create competition by reducing barriers to entry for smaller firms, most probably by improving their access to credit. This should reduce income inequality and boost economic growth at the same time. Most people dislike the growing inequality of incomes, and often argue for redistributive policies to resolve it. Yet too much unskilled redistribution can be counterproductive in that it tends to dampen economic growth. The link between firm size and inequality suggests a better option. By boosting competition, policymakers can please both the public and economists at the same time.

Sources

Morduch, Jonathon. “Failure vs Displacement.” Elsevier. New York University, 24 July 2013. Web. 11 Apr. 2015.

Shaffer, Ronn. “Rethinking Community Economic Development.” Sage Journals. University of Wisconsin, n.d. Web. 11 Apr. 2015.

Stohr, W. B. (1989). Local development strategies to meet local crisis. Entrepreneurship & Regional Development, 1(3), 293-300.

Swanson, L. (1996). Social infrastructure and rural economic development. In T. D. Rowley, D. W. Sears, G. L. Nelson, J. N. Reid, & M. J. Yetley (Eds.), Rural development research: A foundation for policy (pp. 103-122). Westport, CT: Greenwood.

Taylor-Ide, D., & Taylor, C. E. (2002). Just and lasting change: When communities own their futures. Baltimore: John Hopkins University Press.

Visions Of Light

By Professor Myra Chaudhary

“You are not a drop in the ocean. You are the entire ocean, in a drop.” ~Rumi

Rumi is one of the most celebrated poets in the United States, an ancient Persian poet from the thirteenth century. The words from long ago are still true even today. Anybody can make a positive difference in the world, regardless of his or her age. Every single human being in our world also plays a role in shaping it.

When we look at our world, we can see so much beauty. But in the shadows of the beauty there is also darkness. Humanity is also faced by great challenges. It is even more important for us all to work to bring light to the world and make the darkness disappear.

In the words of Edith Wharton, “There are two ways of spreading light: to be the candle or the mirror that reflects it” Light up the candles inside of you and illuminate the entire world.

This article is dedicated to all of my students, beacons of light and visions of our future. And to all sources of light around the world.

“Let us make our future now and let us make our dreams tomorrow’s reality.” ~Malala Yousafzai

Development and Technology

By Dan Wang

I would like to discuss technology’s role in aiding development. I believe that it is of much importance in today’s world.

First of all, I want to discuss the use of crowd sourcing technologies in disaster response and recovery. A USNEWS article, “How to Make Crowdsourcing Disaster Relief Work Better” described how the power of data enabled the New Yorkers to help themselves during and after Hurricane Sandy stroke. That being said, I believe that technology in development not only happens in a tech center like the NYC, but also in more under-developed regions and areas. The Nature Article, “Crowdsourcing Goes Mainstream in Typhoon Response” listed efforts that it called the “digital humanitarians”, in the Philippines; and the United States Institute of Peace had a special report on “Crowdsourcing Crisis Information in Disaster Affected Haiti”.By using a simple crowdsourcing technology like a social networking app, one can generate large sets of multi-dimensional data. That is, the data center can aggregate data from various sources, and not only know the exact GPS location of an event, but also street pictures, traffic maps, or even inventory levels of first aid equipment. Combining all these different data together, the crowdsourcing technology enabled much more effective disaster response teams, where efficiency is key in a time constraint environment. If the response can be conducted with shorter time, then many more injured can be saved before the critical survival period runs out. The possibility of using this technologies lies on the infrastructure development in the developing nations. Many of these nations put telecom infrastructure as their top priority of building, and as a result of that, together with the quickly diminishing price of smart handheld devices, many of the developing countries have very high penetration rate of smart devices. Without these devices and a stable telecom network, it would not be possible for the crowdsourcing technology to be deployed.

Also, I would like to discuss about the technologies in education for developing countries. The one laptop per child project has been an early pioneer that not only uses technology to aid education, but had a set of pedagogies aimed at improving the standard of living in the nations as a whole. The J-PAL lab also aims at bringing nations and regions out of poverty through careful data analysis and a complete methodology of randomization and evaluation. For example, “randomized evaluations have shown that simple interventions, such as providing deworming treatment and informing parents about the returns to education, can dramatically improve attendance at a low cost.”

One last area to look at is the usage of robots and drones. Although this is likely just a concept for the moment, many people have been brainstorming for ways to utilize robots and drones to aid international development. For example, the Guardian discussed the potential use of goods delivery and aerial photos.

In summary, I believe that technology has already changed the way international development is done, and will continue to make development more effective and efficient. These technologies will not only make our lives better and be commercially successful, but also to deliver great value in helping those in dire needs.

Sources Used:

http://www.usnews.com/opinion/articles/2012/11/23/how-to-make-crowdsourcing-disaster-relief-work-better

http://www.nature.com/news/crowdsourcing-goes-mainstream-in-typhoon-response-1.14186

http://www.usip.org/sites/default/files/SR252%20-%20Crowdsourcing%20Crisis%20Information%20in%20Disaster-Affected%20Haiti.pdf

http://one.laptop.org/

http://www.povertyactionlab.org/

Boston And 2024 Olympics

By Tsolmon Choijilsuren

boston

Hosting the Olympics Games is a chance to boost the economy and advertise the country to the world. However, one must be careful enough to note whether the actual benefit would outweigh the cost. For 2014 winter Olympics, Russia lavishly spent over 50 billion for Sochi’s renewal and stadiums, but now the economy is shrinking with negative rate in growth. But things are bit different for China in terms of the development. The estimated cost for 2008 Beijing Games was about 44 billion dollars, but the country managed to rebuild the entire city infrastructure, and the economic growth accelerated since then.

United States Olympic Committee in January chose Boston to represent US in the 2024 Summer Olympics bid. However, a sharp contrast with other big cities around the world and the small favor of residents in the area are drawing back the chance of Boston hosting the Games. A recent WBUR poll conducted by MassINC found out that only 36 percent of Bostonians are favoring the event while 52 and 13 oppose and refuse to answer respectively. In February, supporters were holding around 44%, so within a month, the rate declined sharply by one-fourth, showing the strong inclination of opposing the Olympics. If the rates go down at the current rate, Boston would definitely be cut from the bidding cities, losing to Rome, Paris, or Hamburg.

With two loses in 2012 New York, 2016 Chicago, US definitely wants to work the Boston bid, but problems arise as public are afraid to spend billions on giant stadiums that leave as tourist attractions. The Bird Nest in Beijing is an example of such, now only hosts only several events a year with tourists taking pictures outside.

615_Birds_Nest_Reuters

The local bid committee, Boston 2024 has proposed to include no taxpayer money, only using private sectors to raise the budget and use the Olympic facilities for later use. However, it is important to note the cost always exceeds the budget. In fact, Oxford University recently calculated the average cost overrun to be 79 percent (qtd. in Swift).

An article published in Boston Globe by Mark Arsenault shows that the budget for the Games is predicted to be around 10 billion; 4.7 coming from the corporate sponsorship, broadcast fees, and 3.4 from private developers who would build the necessary facilities. As Boston already has many privately owned companies and universities, the funding may become a success without adding up to government spending. The article goes on to say that the committee is taking ideas from 1996 Summer Olympics in Atlanta to finance its budget as the local universities and corporations are showing high interest in funding the construction. A successful example include the aquatic center in Georgia Institute of Technology, which private organizations raised money to build the venue and later gave to the university as a college recreational center (Arsenault). The author then mentions, it is much easier to host in US cities than developing countries because they already have some necessary infrastructure, and it is much better than rebuild everything out of a bare soil.

The major reasons Bostonians are opposing the Games are the high opportunity cost, and the transportation problems. The MBTA had a rough time this winter, and the public suffered from constant delays and closing downs. The city officials see Olympics as an opportunity to fix the T, but during the construction, many would face problem in commuting as the big avenues are now already suffering from heavy traffics. Also, the budget would come from Massachusetts State, but once its renewed, the public will enjoy faster and more effective transportation.

So can Boston really host the event? Can the Olympics be beneficial to the economy? The answer is up to the private committees and the people of the Massachusetts. If they can raise enough funds from the private sectors, and the government agrees to take care of MBTA, the Games actually might happen in Boston, 10 years from today. The committee also has to work on advertising the benefit of the Olympics to Mass State residents, and earn their position to hold the event on the incoming referendum in November 2016.

Works cited

Arsenault, Mark. “A Boston Olympics Will Mean Billions to City, Study Says – The Boston Globe.” BostonGlobe.com. BOSTON GLOBE MEDIA PARTNERS, LLC, 18 Mar. 2015. Web. 14 Apr. 2015.

Arsenault, Mark. “Atlanta Games’ Venues from 1996 Left Legacy, Some Lessons – The Boston Globe.” BostonGlobe.com. BOSTON GLOBE MEDIA PARTNERS, LLC, 03 Aug. 2014. Web. 14 Apr. 2015.

Falchuk, Evan. “What Would Be A Meaningful Vote On The Boston Olympics? Hint: Not A Referendum.” Cognoscenti. 90.9WBUR, 2 Apr. 2015. Web. 14 Apr. 2015.

Press, Associated. “Bidding Race for 2024 Olympics Starting to Get Crowded.” Www.bostonherald.com. Boston Herald, 13 Apr. 2015. Web. 14 Apr. 2015.

Rooney, James Davitt. “As Boston Vies For 2024 Olympic Bid, We Look For Lessons From London.” Cognoscenti. 90.9WBUR, 7 Jan. 2015. Web. 14 Apr. 2015.

Sands, Lee M. “The 2008 Olympics’ Impact on China.” China Business Review. China Business Review, 1 July 2008. Web. 14 Apr. 2015.

Swift, E. M. “Hosting The Olympics: Bidder Beware.” Cognoscenti. 90.9WBUR, 18 June 2012. Web. 14 Apr. 2015.

Enhancing The Welfare Of Humans Or Just Another Way To Die?

By Chang Yang

The ultimate goal of the world is to continue developing, for all countries; both developing and developed. Throughout the past decade, great achievements have been made and millions of people’s lives have been improved to meet to the living standard or at least have a better life than before. However, just like a medicine that cures disease, development has its side effects, and one of the side effects of development are environmental issues caused by rapid development carried by industrialization.

China is one of the most rapidly developing countries in the world now, pulling 680m people out of misery from 1981-2010 and reducing its extreme-poverty rate from 84% in 1980 to 10% now. Many countries see China as either a role model or as a threat now, because of the major achievement it has made both within the country and in the global world market.

However, great accomplishment came with consequences; many environmental issues have been raised to a critical level in many cities of China. One of the most notorious problems in China is the air pollution, air pollution in the capital city Beijing to be specific. Any pollution rating above 300 means the air is unsafe to breathe. Under these conditions, people should stay indoors with an air purifier running and remain as motionless as possible, according to U.S. Embassy Beijing guidelines. In January of 2015 alone, there were 19 days when the index in Beijing surpassed 300 and reached a maximum of 886 in January 12th, making air in Beijing impossible to breath. The massive air pollution is caused by the expansion of manufacturing industries and coal burning electrical plants burning up to 47 percent of the world’s coal, that power China’s breakneck economic growth.

Air pollution isn’t the only problem existing in China; more problems are waiting to be solved. Water pollution, even ground water, in Huangpu River in Shanghai, due to chemical leakage and dispose of dead livestock; Desertification of 3.7 million square-mile territory, due to the destruction of vegetative land; Unbelievably, there is even the existence of a village named Shangba, known to be the “Cancer Village”, the village is so polluted that simply living there is a cancer risk.

Development is what everyone and every country seeks for. Are we developing at the right pace or are we accelerating to fast? Are we ready for all the consequences caused by rapid development? Is it worth to risk our health to just become richer? As a Chinese, I am proud of my country, but I am also worried about the people’s living conditions. Development should be planned carefully with the awareness of the consequences and regulations should be set strict to minimize pollutions, to ensure the safety of our lives.

The Role of Water In Development Economics: Ethiopia

By Mehmet Imre Kara

Historically, the availability of water has played a huge role in aiding the development of civilizations. Its cleanliness, proximity, and the frequency of its availability have long been tackled by ancient civilizations that thrived, such as the Ancient Egyptians who enjoyed the fruits of the Nile River, the Indus Valley Civilization who thrived off the Indus Valley River, and the Roman civilization who achieved great feats in channeling water and making sure it is clean and available to their army whenever they stationed somewhere new.

In today’s world, much of the first world premature view on water would be concerned with the difference between tap and bottled water or river and lake cleanliness, however, the issue with water in today’s world and developing economies is still far behind the concern of conserving it or avoiding waste byproducts. Water has been a regional issue for the Sub Saharan region of Africa, especially during times of political instability.

The lack of water for an economy or population certainly has fatal outcomes. During the years of 1984 and 1985, Ethiopia endured a war and drought that caused a food crisis resulting in the total death of one million people. Although this figure speaks for both the outcome of drought and food shortages, it is without a doubt that the absence of water/rainfalls was a large factor that contributed to the shortage of food. This is especially true for those individuals that are heavily reliant on agriculture and livestock.

Water is one of the many basic human needs that a large proportion of the world is unable to attain. It has come to the great attention of the United Nations and several other non-profit organizations during recent years that there is a strong correlation between access to clean water and other economic and health indicators.

Besides the primary impact of water shortages, there are secondary impacts that are much heavier when weighed out in terms of achieving economic development in the region. It has been found that there is a positive correlation between access to clean water and female literacy in several regions.

There are two new methods that have attracted much attention in this field. First, there is a product called Lifestraw, which allows users to drink out of any source of water through the straw with instant filtration. Second, the Janicki Omniprocessor, is a machine that generates electricity and clean drinking water from sewer sludge, with only ash as a byproduct.

As you can imagine, water is the source of all forms of life and is one of the two key factors to agriculture, the backbone of many societies. Because of this, there is a huge demand for new alternatives as speculations of war over waters are being made (and have already occurred in minor wars).

There are various methods that can be instilled today that would eradicate the shortage for water and food, however, these come at the expense of other individuals and governments giving up on chasing their profits.

Bigger Shopping Trolleys

By Wenxin Yi

Have you ever noticed that the size of shopping trolley in supermarket has become bigger and bigger? Have you ever thought of why this kind of change may happen? This blog will talk about the reason and the impact of the changed size of shopping trolley in the supermarket.

What can be seen from the changed size of shopping trolley is that people’s living standard has been improved as time goes by. Compared your living standard now with that ten years ago, almost every family has a much better living standard due to personal efforts and government policies. The increase of disposable income promotes the demand of food. As the demand of food becomes more various, food in the supermarket tends to be more various as well. As a consequence of more goods available to consumers, the size of shopping trolley becomes bigger to satisfy consumers’ need.

In addition, the larger area of people’s houses and the popularity of private cars also influence the size of shopping trolley. Take my grandparents as an example in this case. In the past, they lived in countryside which was not developing at all. The house they were living in was only approximately fifty squares. It means there was not enough space to store a lot of food. However, now they are living in a much bigger house, so it offers my grandmother an opportunity to store as many food as she wants. Besides the change in housing proportion, the popularity of private cars also a factor causing the difference. Also the example of my grandmother. In the past, she needed to take bus or taxi to supermarket to bring all the stuff back home. After my father bought his own car, he could send my grandmother to supermarket and put everything she buys at the trunk. Also, the elevator helps to delivery food as well.

On the other hand, the supermarkets need to offer a better shopping environment to attract more consumers. According to the relationship between demand and supply, once the demand of food increases, what the supermarket should do is increasing the variety of food supply. Also, if a supermarket wants to attract more consumers than others, it is supposed to offer food which could not be found in other supermarket. So as a result of business competition, supermarkets prefer to offer larger shopping trolleys to promote consumers’ consumption.

Although the changed size of shopping trolley is a tiny change in our life, it is not hard to see that people’s living standard has improved a lot in recent years. Only if everyone makes their efforts to live better and the government pays more attention to people’s living standard, can our life become better and better.

Should We Stop Smoking?

By Wensi Shen

Cigarettes are one of the most common things in the world. According to the statistics, there is almost one billon people in the world have the habit to smoke. In other words, there is one person smoking among every six people. That is a really huge number!

In China, the tax of tobacco products is to reach to 27.33 billion dollar one year. We can see that tax of tobacco products occupy a large amount in total tax in China. It is a good thing for China now because the more tax that Chinese government can receive, the more welfare that Chinese people can take. However, as more and more people have the smoking habit, it will bring the bad consequence to not only China, but also the whole world in the long run.

Nicotine, the poison chemical component in the cigarette, is harmful for the human body. If a person continuously smokes for years, his or her lung and other organs will be destroyed and even incur cancerous cells to grow. In the recent years, lung cancer has become among one of the most prevalent cancers in the world. Cigarettes not only make people to become unhealthy, but also it brings the problem to the world health care. In future years, if we do not discourage people from smoking, we may lose a clean planet and healthy bodies, which will affect the whole world including developed and developing economies and the environment.

For example, a country needs people who have healthy bodies to develop. Labor strength is very important factor in a counties’ developing process. Smoking will incur diseases and affect the environment quality. As the government of country, they should focus on increasing the tax income, but the most important is that they should concentrate on developing a country in a “healthier” way. Banning smoking is one of the most important steps in this process. Stopping smoking is difficult and it will need all of us get together to make it happen.

Welcome To Economics And The World!

To Broaden The Understanding Of Economics Around The World.

Launched With The Global Development Forum Project:

Including Articles & Op-Eds Written By The Economic Minds Of Our Future.

Dedicated To The Youth Of The World

And Everyone Who Wants To Make A Positive Difference In The World.

-Professor Myra Chaudhary

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