Both intro Economics and intro Physics use simplified unrealistic models to introduce basic concepts, e.g. intro Physics will usually neglect friction & etc.
The difference is that people don't come away from Physics 101 convinced that friction doesn't exist and prepared to argue fervently that it doesn't despite all evidence to the contrary, but something very much like that seems to be the common outcome of taking Econ 101.
Okay, I'm stupid, because I'm shocked that there no evidence of an effect in the data. I can believe that the effect is not one-to-one, but how can there be no effect? Employers pay for insurance out of the goodness of their hearts?
The snark in the final paragraph gets at a common misconception of how economists think. Economists assume that employers are trying to screw employees at all times. If employers can now fuck their employees because of the Cadillac tax, why didn't they fuck their employees before? They don't need an excuse to give you less health insurance. They can just give you less health insurance. What are you going to do, get a new job? If you could get a new job, you would have done it already.
Employers pay for insurance out of the goodness of their hearts?
No, but employers may have benefits and wages as separate categories, psychologically. If they're separate categories mentally and not combined into "compensation", then savings in benefits will go to plug the most urgent hole in your company, and not necessarily to wages.
Ok this does sound bad for economists, but obviously they do have a point about how the problem is really only a practical one having to do with designing your studies to get the accurate, rather than inconvenient, answer. After all, if the theory wasn't accurate then theorists advocating it would make poor predictions which would make their predictions less valuable to the general public. And as a result people would prefer the predictions of their competitors and they would lose ground in the free market of ideas, and have correspondingly lower intellectual profits since they would only be able to sell those predictions at a vastly reduced cost, to the most intellectually bankrupt people in that market. And eventually this would result in a poorer opinion of those predictions leading to their eventual collapse. It's just Econ 101 here people.
I was first introduced to this wonderful synedoche of (large parts of) economics here, right? I think it must have been, but I can't remember where.
I think employees have benefits and wages as separate categories more than employers so.
At Heebie U, our health care plan has gone up, flat across all employees, for the past two years. After a few years of not getting any COLA increases, we're about to get a 2% increase across the board.
It does not seem highly important to the administration that this disproportionately hurts the lower wage employees. They're just mentally not attuned to that, presumably because these are different categories psychologically.
Or they're very attuned to the relative lack of alternative jobs for lower wage employees.
The snark in the final paragraph gets at a common misconception of how economists think. Economists assume that employers are trying to screw employees at all times. If employers can now fuck their employees because of the Cadillac tax, why didn't they fuck their employees before? They don't need an excuse to give you less health insurance. They can just give you less health insurance. What are you going to do, get a new job? If you could get a new job, you would have done it already.
Sorry about the snark!
But to the actual question, I assume the Cadillac plans were because that's what the decision-maker managerial types actually wanted for themselves, and they had to buy in bulk. That they didn't extend those plans to employees further than they had to, originally.
If you buy health insurance at Costco, you get six plans that are shrink wrapped together.
The snark in the final paragraph gets at a common misconception of how economists think. Economists assume that employers are trying to screw employees at all times. If employers can now fuck their employees because of the Cadillac tax, why didn't they fuck their employees before? They don't need an excuse to give you less health insurance. They can just give you less health insurance. What are you going to do, get a new job? If you could get a new job, you would have done it already.
Economists assume that employers are trying to screw employees at all times (which may be a workable assumption for many situations even if overstated and not really true in many contexts), but they assume that employers' ability to screw their employees is severely constrained because they are operating in a highly competitive market for employees, in which employees have very good information about the many comparably attractive job options available to them. In most contexts that is a ridiculous assumption.
Maybe someone will win the Nobel prize for figuring out that people hate to change jobs.
11 doesn't really refute the paragraph that it quotes, though. If economists are overstating employees ability to job-shop, then Cadillac Plans wouldn't be mysterious to the economists.
If employers can now fuck their employees because of the Cadillac tax, why didn't they fuck their employees before?
Because providing generous health insurance had become a norm (call it a market equilibrium if you must), in many cases won over decades of hard fought union negotiations. With the Cadillac tax, employers suddenly have an excuse to strip back those concessions. Is it possible that over the course of decades the competitive process among employers might result in competing bids for employees pushing up wages in a way so as to offset the loss of these generous health benefits (and so to diminish the excess profits employers are earning as a result of this change)? Well, I don't really buy that the process works quite that way, but yes, sure, it's possible. But that would be a decades-long type adjustment (as in, possibly an entire generation's full working careers). Labor markets don't adjust to new equilibria in real time, like fucking bond prices. Of course in the intervening period employers are just really going to grab that extra profit.
To try and respond to 14, and clarify what I think is the question, economists aren't trying to explain Cadillac health insurance plans, they're trying to explain why taxing those plans punitively (so that employers stop offering them) hasn't lead to employers offering higher wages to the affected employees to offset the fact that they are now getting Less generous/less expensive health coverage.
I haven't read the linked article, but I think that's the issue.
Nearly everything about "market-based" health insurance reform is a goddamned racket.
17: The Cadillac tax isn't in effect yet.
This bullshit comes up every time an economist mentions the SS tax- How sad that employees are paying 12.4% tax! No, asshole, they're paying 6.2% up to some cap, and if you cut the employer side everyone's wages aren't going to magically go up by that amount.
Aside from self-employed people, who really are paying 12.4%.
20: true, but it is already the law (scheduled to go into effect) and employers are already discussing scaling back benefits in anticipation.
I think 8 is exactly right. There are reasons (both legal and practical) to have a relatively small number of health care plans offered by a given company, but those same reasons don't apply to salary. So the ruling class can just pay themselves more without paying anyone else more, but they can't as easily just give themselves cadillac health care plans.
But what force does a norm have? As Stalin said, how many divisions does a norm have? Your employer doesn't care about you. You're a line on a spreadsheet. He could obey the norm, or he could violate the norm and buy a new Gulfstream V for his mistress. Why doesn't he?
23: Employers (like mine) have already scaled back benefits as a result of this tax. Why they're doing this in advance of the tax happening is an interesting question.
25: as I said, call it a market equilibrium if you must. Repeat your questions with that substitution and your questions are easy to answer.
Anyway, this time not reading the article is a mistake. The really shocking thing is not the Cadillac Tax argument (you can imagine all kinds of explanations, such as heebie's buying in bulk), but that there is no empirical evidence of a trade-off between paying people in money, and paying people in health care. Not an imperfect trade-off because of psychological reasons or market distortions or whatever. No trade-off. Your employer has three pots of money: your wages, your health care, and the Davos party budget. If there's no trade-off, then your employer is deciding how much to pay you in wages and health care, without looking at the balance in the Davos party budget. Or alternatively, when you get hired, you don't weigh the trade-off between better health insurance and higher pay at all.
urple is right. The gist of it is that economists consistently underestimate or ignore the psychological traits of humanity. They mostly know they are doing this and they do so not without reason in all cases, but they shouldn't act surprised about it.
The force in a market equilibrium is that if your pay is too low, you'll quit or go find another job, and if the pay is too high, your employer will fire you. There are two opposing forces, which lead to equilibrium. How do norms change the balance of these forces? What can you do to your employer for violating a norm that you can't do if they do something else you don't like?
A norm means that it's something people tend to do even in the absence of clear, immediate consequences for violating it. See 29.
Adjustments like this take a long time.
Speaking of ridiculous markets, Orbitz is really dangerous. Unless there are lots of people who don't mind 13 hour layovers between 50 minute flights.
30: How can you tell if your pay is too low? How can your employer tell if it's too high? What is the timescale on the return to equilibrium?
I'm guessing the timescale is something along the lines of "long enough for employers to find some new trick to use once this one stops working". That's usually how it seems to me to work, anyway.
Job searches are expensive. They always seem to involve purchasing plane tickets to Philadelphia. You get reimbursed, but you have to be able to front the money.
As Stalin said, how many divisions does a norm have?
Well, there's Vera and Cliffy, and maybe Frasier and Lillith and little Frederick...
35: By timescale (that's not a real word, is it)the time the system takes to return to equilibrium I was referring to the general system Walt set up, where there are two restoring forces. Economists have a habit of identifying such forces and using intuitions about stable equilibria even when the forces are practically unmeasurable and the system can't reach equilibrium within, say, the timescale (oh fuck it) of the Industrial Revolution.
Another common mistake they make is to assume that, before whatever change they are studying occurred, the system was in equilibrium. Thus, within a long period in which capital is successfully shrinking labor's share, they are surprised that employers seize an opportunity to cut their employees pay.
1: The simplified models of Physics 101 are actually useful approximations, as in the answers they give are in numerical proximity to reality, with the deviations accurately estimatable. Not so much with the Econ.
Economists never consider that there's a penalty to future employability for changing too often. Resumes look bad when you have 12 positions in 4 years.
Or alternatively, when you get hired, you don't weigh the trade-off between better health insurance and higher pay at all.
Does that sound surprising to you? I mean, sure, if you had two competing job offers from nearly identical companies, with identical compensation except for a more generous health insurance package at one of the two companies, then maybe you'd opt for one job over the other on that basis. But how often does that happen? Alternatively, I know people with expensive pre-existing conditions, who (pre ACA) took care to evaluate the health coverage employers offered--because they had to have adequate coverage or they would go broke. But again, that's not normal behavior.
The force in a market equilibrium is that if your pay is too low, you'll quit or go find another job, and if the pay is too high, your employer will fire you. There are two opposing forces, which lead to equilibrium. How do norms change the balance of these forces? What can you do to your employer for violating a norm that you can't do if they do something else you don't like?
What I am calling a norm *is* the market equilibrium. It's not something changing the balance of these forces. But labor market equilibrium does not work as cleanly as you have described. The equilibrium was achieved through decades of hard won negotiations, mostly by unions (union members and executives are nearly all the Cadillac health plan recipients). The equilibrium will be thrown off when employers have an excuse to stop offering the health plans, because of the tax. Please describe the process by which you think the workers would get their compensation increased to offset for this. They will quit en masse and go work somewhere offers higher pay? Where would that be? Will there be another employer offering higher pay? Possibly... for one position or two. Not in general.
I still think the Cadillac Tax is a good idea. It's not really an extra tax so much as ending a tax break that went to people who weren't me and weren't especially de-privileged.
I guess this is a mystery in the same sense that nominal wages resist adjustments downwards during slack labor markets, with changes to the insurance market standing in for inflation.
I mean, it is a tax, but the rate of the tax isn't that much greater than the income and payroll taxes that would be applied if the compensation were given as wages.
I don't think economist appreciate how difficult it is to get a raise when you have a job. COLA raises have been significantly less frequent, and merit raises, in my experience, tend to be a joke. Like, if you work your ass off, you can get another 2% next year.
I have found, in my career, that the only substantial bumps in salary come with promotions, or by switching to a different employer.
It's a bit alarming to gradually figure out that trying to earn more money might plausibly put you in a situation where living in New Jersey is your best option.
I'm not sure why, but the belief that economists haven't thought about various issues is widespread among the commentariat here. The mysteries of wage stickiness are a very frequent area of economic scholarship. Roughly, one aspect of the the problem is that it's expensive for employees to find new jobs, and also expensive for employers to replace employees who leave. So it makes sense for both employers and employees to stick together in long term relationships without either raises or pay cuts. Pay cuts tend to provoke people to leave so they are rare. Without pay cuts, people don't usually leave, so raises are small.
Another aspect is that it's unpleasant (or expensive, as economists like to say) to spend a lot of time with people who are miserable. If you keep all of your employees and cut their salaries 10%, you will be in the company of a bunch of miserable people. If you fire 10% of your employees and hold the rest at constant salary, those 10% will be even more miserable, but you don't have to deal with them.
The second most confusing aspect of the Cadillac tax studies is that the tax hasn't gone into effect yet, and mostly affects people either executives or unionized employees who have long term contracts, so there's plenty of reason to believe that it's just too soon to measure any effects.
The most confusing aspect is why they call it the Cadillac tax. No one under 80 thinks of Cadillac as either an exceptionally expensive, or an exceptionally excellent, product.
If they called it a Lexus tax, everybody would think they were talking about the doctors' cars.
I'm not sure why, but the belief that economists haven't thought about various issues is widespread among the commentariat here.
Oh, I'm sure they have thought about it, some more than others. But only for academic purposes. When actually making a pitch to influence policy, however, there is a much broader tendency to ignore any theory that recognizing that employers are going to screw employees, in favor of "Capitalism! Teh market! Rah Rah Rah!"
Maybe someone will win the Nobel prize for figuring out that people hate to change jobs.
I actually read an econ paper from everyone's favorite econ department exactly on this topic. Contrary to the hypothesis, the researchers found that (shock!) poor people weren't simply mobile labor units that could flock to wherever there were jobs, and that there were significant barriers to relocating across the country every few years.
Apparently, there are lots of places that are a half hour by train from the useful parts of Philadelphia. I guess you just pick the one you can afford a house in and start from there. It looks like by simply trading a free commute of 15 minutes each way for a few hundred dollars a month and a 30-45 minute commute each way, I wouldn't even need to spend much more for a house. Am I missing something? CHUDS? You can't get over the shame of saying you live in a place called "Wayne"? The trains don't work as well as Google Maps leads me to believe?
51 is right.
Also you don't see a lot of pushback about it from other economists. So economics ends up representing itself that way and everyone in economics* comes off as basically fine with that.
*With the obvious exception of Paul Krugman's regular "OH FFS PEOPLE" columns.
Krugman's work was specifically on the effects of local concentration of industry- I mean, I work in probably the optimal place for people in my industry to walk out and get a new job the next day, and while it's relatively common it's not like people change jobs every year. I'm an anomaly in that I've been at my place almost 9 years, but I'd say the median tenure is around 4 years. It's still a pain on both sides to change jobs.
53
Would this be SEPTA? I think a life without a SEPTA commute is worth a lower salary, at least up to a certain point. 10-15 years ago when I would take it occasionally, it seemed expensive and not as reliable as it should be.
To be honest, I'm not as reliable as I should be, but it looks like a monthly pass is under $200/month no matter where you go on SEPTA.
53: If they're not offering you a mansion on the main line as part of the recruitment deal, you should probably turn them down.
They call it the Main Line because "Paoli/Thorndale Line" is too easy to look up on the internet, I guess.
Thorndale is about halfway between intercourse and City Center. It's still only an hour by train.
I'm not sure why, but the belief that economists haven't thought about various issues is widespread among the commentariat here.
Yeah seriously -- I was just thinking that if it was this easy to come up with questions about labor that economists hadn't considered, I should return to school and claim my Nobel Prize in 15 years. Since there's zero cost to quitting a job in Silicon Valley.
Where TF is Thorndale?
Let's see, it's next to Coatesville. Yep, that is the very farthest that commuter rail will go.
Narberth seems nice. And closer. And still hard to spell but as hard as Cynwyd.
Comparing the minutiae of health plans when considering job offers is almost as useless as comparing the details of presidential candidates' health plans. You know the latter are going to change; with the former, you should just suspect that they are very likely to change.
I would imagine that most job-seekers have historically used only a binary process: is there or is there not health coverage.
I think comparing the portion of the premium charged to the employee is fairly common. It varies quite a bit, is fairly transparent (compared to other plan details), and can make a big difference in budgets.
I'm not sure why, but the belief that economists haven't thought about various issues is widespread among the commentariat here.
The linked article makes them seem pretty silly! But maybe that's bad journalism.
67 -- Right. And then the next year they switch carriers, everyone has to switch doctors, and the contribution goes up. And someone who made a decision considering any aspect of coverage feels like a chump.
If it were bad journalism, the market would have made sure we didn't see it.
69: The carrier might vary but the amount any given employer is kicking in is more stable and has a bigger influence on the cost to the employee than the carrier. At least for not-crappy jobs.
[Confidential to Moby: E-mail me. I can tell you more about the demographic and economic considerations involved in choosing where to live in the Phila suburbs than anyone in their right mind is interested in learning.]
Also, people will be able to tell you're not from Phila if you pronounce the second "R" in Narberth.
It's just possible I am in my right mind, but I will send you a message.
I'm guessing - re: 61's point - that noticing that those things are there isn't really the hurdle - they're really obvious. The hurdle comes in in doing those studies in the way that economists thing economics looks like. And the problem is that the way a lot of economists think economics has to look has a lot of demented-yet-somehow-awfully-convenient-for-certain-people stuff built into it that makes the seemingly really obvious points difficult-to-impossible to get at.* So the problem isn't as much that economists are dumb but that economics makes smart people think in dumb ways and economists seem really bad at coming to terms with the fact that coaxing the actual world into the models built around the stuff they learned as undergraduates is hard because the stuff they learned doesn't work, rather than assuming that it's hard because the world is hard to figure out.**
You see this general phenomenon all over the place, I think.*** But in economics it seems especially dumb because they're making a lot of direct predictions and advocating for policies and as often as not when they fail the reason they failed is something that makes them look like imbeciles like "it turns out people don't like moving to new states every six months" or "transaction costs exist".
*Yes I know I already linked to that in this thread. It's still relevant. And also I love it.
**Which it is! This makes things problematic when it comes to this realization.
***My favorite example is epistemology where you have - I swear - massive parts of the field who refuse to grant that if every version of these accounts of knowledge entail the nonexistence of knowledge, and they are literally studying knowledge for a living, then they need to find a new way of thinking about what it is. (This is probably slightly unfair to them, yes, but I have been really amazed at the number of people I've met who seem psychologically incapable of understanding Moore's argument, which is basically that.)
Anyway, I'm also going to ask how much the health insurance costs for a family though I won't ask exactly what is covered.
I didn't mean to imply that economists had never considered the problem of sticky wages. Come to think of it, it would be a little surprising for too many economists (at least those who approach science) to be shocked by null results, and there is an interesting phenomenon to be explained, even if it's too data poor to be anything but underspecified.
I vistied Fishtown and liked it a lot, the excellent beer hall compensated for the insance cast-iron brazing place having shut down. The beer hall should be enough of a basis to choose a neighborhood.
I think Charley's last few comments are on point. I mean, surely people look at that stuff, but if they think it's a secure fact about the future, they're not very familiar with the job market. Obviously we're in an especially unstable insurance market over the past few years with the ACA, but:
Last night we Board members discussed the health insurance benefits for employees of the M/dw/fe Center. The last couple years, we were with our (I think) longtime carrier, and inflation was minimal. We've been holding the line on zero copay (because we can't pay market rate salaries for midwives*), and this year there was to be a 9% increase in plan costs, so we shopped, and will switch carriers to control that increase. The employees will see no change in compensation, but the Center will pay more, and now we're using an insurer associated with a local hospital chain that, frankly, is trying to fuck us over on clinical/business matters. That is, nobody wants to be in their system, but that's where the money drives us. And, frankly, if their prices go up in 2 years, we'll switch away. Sorry, people who like their PCPs!
Meanwhile, salaries are steadily increasing (partly so that we can approach parity on that front); nobody's ever taken a hit on that, while they have had to take hits on health coverage (in the form of disruption, not cost, but it's the same).
*and, come to think of it, because it's a young (health-wise) cohort that works there; it's hard to catch babies into your 60s, and the rest of the work has generally skewed young, possibly towards idealistic young feminists
I didn't read the link in 75 the first time you posted it, so I'm glad you posted it again. That's really great. Economists are beyond parody.
Steven Lansburg is the poster child for the stereotype of so-smart-he's-dumb. He was an algebraic topologist, and he routinely answers extremely technical questions about algebraic topology on Math Overflow. But he's a terrible economist, because his view of human psychology is more accurate for chess-playing programs than actual human beings.
But here's the thing: Lansburg is not a particularly influential economist within academia. And yet, he had a column in Slate. He had a book on economics that was a moderate best-seller. The media loves simplistic right-leaning economists. The world loves simplistic right-leaning economists. If you read the Vox article, they list 8 papers that show empirically that there is no trade-off between health benefits and wages. 8 papers by economists. Are these economists famous? Do they have columns in Slate? Can they write books that explain "how the world works" that people will buy?
He's also talking about a whole bunch of economists, not just himself, which is part of what makes the article ridiculous. The guy he credits with the proper solution seems like a fairly prominent economist within the field.
I like it mostly because it's a really good demonstration of how they're locked inside a really bad framework* and unwilling to just give up on it though, so they have to scramble for bizarre workarounds. Even leaving aside the extent to which human psychology makes the results of marginal analysis useless for any kind of predictive work, I mean, it's just a bad account of what reasons people have and/or how they ought to act if they're being rational. But instead of rethinking the way they're defining rational they go on an extended hunt to find a workaround that will give them what they actually know right from the get go is the correct answer. (Not mentioned in the article, importantly: how do you know which situations call for marginal analysis in terms of distance and which ones call for it in terms of time? The answer is almost certainly "you use the one that gives you the answer you were looking for in the first place".)
...and then when I looked back at it to find the name of the guy he credits with the full solution I found that he literally finishes the article with
Marginal analysis really works. If it seems not to be working, the right question is not, "Why doesn't the marginal analysis work?" Instead, the right question is, "How am I failing to understand the marginal analysis?"