Wednesday, August 31, 2016

Excel Homework Due 9/7 at 11 PM

The Tutorial should be straightforward.  However, if you have some difficulty please post a question as a comment to this post.  You can also try to catch me after class or set up a meeting with me at some other time.  In either case, you should have your laptop with you then so we can see what the issue is in your own computing environment.

Monday, August 29, 2016

After you've made a test post to your blog, email me the url

In order for you to have your blog listed on the class site, I need to get the url (Web address) for your blog.  I only need to this once.  Thereafter I can track everything you post without you having to alert me to that fact.

To do this:
1) Click the view blog button in your control panel.
2) The url for your blog is in the address bar of your browser.  It is highlighted in yellow in the image below.
3)  Copy that url and paste into an email message to me.


Professor Arvan

Saturday, August 27, 2016

Background Information for Class on Tuesday 8/30

The Economics of Lock-In

Business practices develop in an environment where the practice is efficient, more or less.  Then the environment changes, but the practice does not.

A Couple of Historical Prices for Comparison with Today

Tuition 1980 (in state) ....  $682

My (9 month) salary as a starting faculty member in 1980  ..... $19,500.

Rough inflation adjustment - multiply by 3 and then round so the numbers are easy to manipulate.

Tuition 1980 in today's dollars..... $2,000.
My salary 1980 in today's dollars......$60,000.

What are the equivalents today?

Tuition 2016..... $12,000
New Assistant Prof in Econ.....$130,000+

So in state tuition has gone up roughly 6-fold in real terms during that time, while the salary or a new assistant professor in economics has roughly doubled in that time.  What explains this?

At least two different things happening.
1.  College costs are hyper inflationary - they grow faster than the rate of growth of inflation overall.
    a.  Baumol's Cost Disease - for sectors of the economy where there is no productivity increase over time.
   b.  With increasing income inequality in society overall, those goods and services that the rich value will rise in price faster than overall inflation.  College is in this category.   Look at private school tuition.  It is in the stratosphere now.
   c. There's been a destructive non-price competition across universities - to be the best - that has raised costs.

2.  The state contribution toward public universities declined as a share of overall revenues and then declined overall.

Friday, August 26, 2016

Privatizing Public Education By the In-State versus Out-Of-State Tuition

I will be discussing some of these issues on Tuesday, as we continue considering the University as an organization.  What this piece shows is that the issues are being confronted by all of public higher education.

Thursday, August 25, 2016

Gift Exchange and Altruism

While I will repeatedly mention collegiality in class as my preferred behavior in the workplace, you might prefer to think of it as altruism at work.  Altruism is an important motive for us, though most of us consider it in situations outside of work.  There is a nice discussion of it in the piece by David Brooks linked below.

Wednesday, August 24, 2016

More on Efficiency or Screw Up with Undergraduate Education

This is just about screw up.  The Disengagement Compact from What We're Learning About Student Engagement From NSSE (2003).

From page 5 of the pdf

So there is instructor moral hazard as well as student moral hazard.  Why?  Is there a way to solve this?

Is personal integrity a sufficient solution?  If not, what else might be done?

Is their also moral hazard higher up than the simple instructor?  Why might that be?

Other sources that make similar arguments:

Declining by Degrees:  Website, Documentary Video, Book.

Academically Adrift

And for the very high achieving students
Excellent Sheep

Gift Exchange and Collegiality as the Basis for a High Productivity Work Environment

There is a rather large literature on "efficiency wages," where workers earn job rents (they are paid more than their opportunity cost) and this is done for productivity reasons.  There are a variety of explanations for this.   The gift exchange story gives one of those and is attractive, in part, because it is more sociology than economics.  (We clearly care about the welfare of others, but that conern is usually absent in the economics approach.)    The efficiency wage approach, in turn, followed a similar approach called "implicit contracts" where, in effect,  the employer and the workers have a mutual agreement of the sort, I'll scratch your back if you scratch mine.  When it's time for your own back to scratched, you earn a (quasi) rent.  The hero of the implicit contracts story is Arthur Okun.  He referred to the back scratching arrangement as "the invisible handshake."  Incidentally, implicit contracts can exist elsewhere than the labor market.  For example, a shop owner might very well have an implicit contract with her loyal customers.

The gift exchange model is the brainchild of  George Akerlof.  Given that Janet Yellen is now the Chair of the Federal Reserve, Akerlof may come to be widely known as her significant other.  But he is a first-rate economist in his own right.  Indeed, he is a Nobel Prize winner. 

Akerlof's theory is rather simple to articulate, as is the debate over the right way to provide incentives in the workplace.  The quintessential issue is whether pay should be performance based and hence vary from individual to individual who hold the same job or if instead pay should be position based and not feature such idiosyncratic variation, except perhaps on a seniority basis    Of course, even with fixed pay per job, performance matters.  But it is rewarded differently than when there is pay for performance.  The argument is that promotion should be the primary reward for exceptional performance.  Within a job classification, the workers need to be managed fairly, which provides the basis for equal treatment.  Fairness is more of a sociology concept than an economics one.  

The vision for why gift exchange produces superior performance was supplied by Dumas père in The Three Musketeers.  It is embedded in the relationship between Athos, Porthos, and Aramis (the workers doing the same job) and D'Artagnan (their manager) and is captured in the phrase, "All for one and one for all."  Akerlof crafts that vision and related ideas from sociology to make an economic model of it.  For the non-economist, it might be framed as collegiality-driven productivity.  Here are the model's basic elements.

There is a minimal performance standard below which the employee will get fired.  There is a performance norm, substantially above the minimal standard, that typifies what workers produce.  The difference between the minimal standard and the higher norm constitutes a gift that workers give to the firm.  Likewise, there is a minimal wage below which workers would quit and find work elsewhere and there is an actual wage above that minimum that the firm pays to workers.  The difference is a gift that the firm gives to its employees.  Gift giving demands reciprocation for it to be sustained.  When that happens all involved feel good about the place of work and productivity is high as a consequence.

There is one more piece to the puzzle.  This regards how productivity is observed and what explains variation in productivity from one worker to the next and for one worker over time.  From the worker's own perspective, this is mainly due to random factors - circumstances beyond the employee's control.  Or, in the case where there is clearly a drop off in a particular employee's performance, it can be attributed to outside of work stresses (e.g., a sick child at home) that are apt to be temporary in nature.  The correct response in this case is not to punish the employee but rather for co-workers to chip in and pick up the slack.  Sometime in the future, the employee who received such help will lend a hand when another co-worker has a similar problem.

Someone who favors pay for performance but comes to the issue of appropriate compensation with an open mind might grant that collegiality-driven productivity can be a good thing, as long as the fire burns within all the workers, but will argue that eventually a worker burns out and turns into dead wood.  That is not temporary.  It is a permanent change.  Then he will argue that the gift exchange approach sustains the dead wood, who act as a drag on the entire system.  One needs, instead, a time-consistent way to purge the system of the dead wood.  Performance based pay does that.  (This issue has been discussed quite a bit with regard to teacher pay and teacher tenure.)

Akerlof's model does not address that critique.  Before I provide my own answer, let me take a slight detour.  The Akerlof gift exchange model is essentially social in nature.  There is a different reason to depart from performance based pay that is intellectual in nature and is particular to knowledge work.  This other view is articulated by Daniel Pink in this RSA Animiate video and focuses on psychological explanations for productivity.  There can be performance anxiety or, if you prefer, writer's block. High performance is achieved when intrinsic motivation is strong and the individual becomes so involved in the work as to entirely lose a sense of self.  Making extrinsic rewards overt moves the individual's focus away from the intrinsic motivation and thereby lessons productivity.  Better to have the economic rewards provided up front so that one can put them out of mind when the real work commences.  While I have critiqued this video on how it represents the economics, I concur with its representation of the importance of intrinsic motivation. 

Burnout then can be thought of as the disappearance of intrinsic motivation.  The response to the critique is to look at the causes for why intrinsic motivation should disappear.  One possible cause is a sense of plateauing in the work.  There is little left to learn, no inherently new challenges.  For the most part it is a rehash of what's come before - been there, done that.  When it happens, it would seem to make sense that the worker should move onto a new challenge; do something else.  There is, however, a different cause that is also possible.  It is that the individual confronts organizational barriers that seem arbitrary and anti-productive and those barriers repeatedly thwart the individual's creative efforts.  Eventually, the individual wears down from not seeming able to accomplish sensible change.  Gallows humor becomes part of the routine as the individual loses the desire to fight the system.  This second cause might reasonably dictate that more fundamental organizational change is necessary.  The burden shouldn't be placed on the individual to accommodate organizational inertia.

It is this second cause that forms the basis of the response to the critique.  The Akerlof gift exchange approach must happen within a dynamic organization that makes organizational learning paramount.  (See Senge's The Fifth Discipline.)  Employee burnout might still happen in such organizations, but it would be far rarer.  When it does happen the appropriate organizational response should be job reassignment rather than immediate severance, this in accord with the gift exchange view.  Collegiality, in tone and actual practice, then characterizes good jobs and is at the heart of how the organization remains productive.

In my years working in learning technology, everyone I've encountered knows this implicitly, though I expect that the vast majority of them were not acquainted with Akerlof's gift exchange model.   I wonder if people reading this post with a prior disposition toward pay for performance might consider collegiality based alternatives instead. 

Tuesday, August 23, 2016

Exchange with Bob Gordon

While you are settling into the semester, I thought you might find the exchange linked below interesting, though truthfully it is unrelated to our class content.  It is more on macroeconomics, productivity and growth.  I'm more like a diehard fan on these matters and read about them in a variety of periodicals than I am a scholar with professional expertise on these matters.  I do not claim such expertise.

Robert J. Gordon is a true expert in this area.  He has a recent book out called The Rise and Fall of American Growth, which has gotten quite a bit of attention.  I had Gordon for the second quarter of macro during my first year in graduate school, 1976-77.  I've seen him a couple of times since I left Northwestern, but nothing recently.  I had written a blog post based on a piece he wrote in the New York Times.  I sent him a copy and he was gracious enough to reply.

If you do read through this, you will see there are still some puzzles out there that even the foremost expert doesn't yet know the answer to.

America's Battle with Creativity - Is School Killing It? What else might explain this?

The issues about learning that will be raised during the class session are not just for members of the class but really are for society overall.  To show the concern that has been expressed on the matter of creativity (and that we're not doing as well as we should) consider the following two pieces from a few years ago.  I wonder if in reading them you find yourself surprised.  I was when I read them.

If you buy the results in the piece linked above, the question is why this is happening.  One argument that has been advanced is that kids get too much supervision these days so don't develop a sense of autonomy and that they can function well by making their own independent judgments.  A piece called The Overprotected Kid makes this argument quite forcefully.  

The linked piece contrasts conformity with creativity and argues that most people want to conform.  They don't want to buck the system.  On this one, rather than ask why, I'd like to ask simply whether this agrees with your own experience.  On campus, are most students conformists in your experience?  

If you need Microsoft Office

You can get MS Office for free if you are a student.  Follow the link below.

Friday, August 19, 2016

Setting up a blog for the class - part 2

This is the rest of the tutorial.

Setting up a blog for the class - Part 1

As an alternative to the instructions below, you can use the campus blogging service at publish@illinois.  Then you log in with your NetID and password.  You can adjust your screen name to your alias, to protect your privacy.  But I don't know whether you can access the site after you graduate.   Also, for commenting on the class site you will either do that anonymously or use your real name.

As still one other alternative, you can have a blog in Moodle, which is then not publicly available.  Truthfully, this is much less convenient than the other alternatives.  But it protects your privacy the most because the the rest of the world doesn't have access to the Moodle class site.  If you want to pursue this alternative you must contact me about it.  I have to set it up for you.

- - - - -

The instructions below and in the next post are aimed at setting up your blog so that you post under your alias - nobody outside the class will know who you are - and make sure that everybody understands this is a blog of a student, not of the person from whom the alias was constructed.

The video below was made for the class from a few years ago.  It is applicable still, though Blogger has changed a bit since.  Also note, that it assumes you are making a new Gmail account just for this use.  As an alternative, you can use your non-university Gmail account equally well, if you are not already using Blogger with it.  Do not use your campus email.  That will not work.

The main thing is to use the Blogger Profile, not the Google Plus profile.  The Blogger Profile is what allows you to post under an alias.  See the image below.

If you choose to subscribe by email

Note that the email subscription produces one message a day whenever there is activity on the class site in the previous 24 hours.  That message will include all posts in full that were made during the 24 hour time frame.

If you choose to do this you will receive a receipt message acknowledging your subscription.  There will be a link in that message that you must click to activate your subscription.

Tuesday, August 2, 2016

What sort of Econ in the News pieces?

I wonder if I should post more macroeconomics pieces this fall, even though the course is really about microeconomics.  Given the politics of the Presidential race, macroeconomic policy is apt to be in the news quite a bit.

Demo Announcement

Just want to get a quick post up to make sure the site is functional.