Playing the new IR game

In this week’s BRW, David James considers how the game between employers and employees will change under the new industrial relations regime. He quotes yours truely: “Employers can celebrate, but employees shouldn’t have families.” I apparently go on …

When you change who gets what, it will change people’s lives. Take someone who has four weeks leave, and can take two of those and buy it back. The claim is: ‘You don’t have to buy it back, so how can you be worse off?’ But if I am an employer who sees a benefit in having people work for 50 weeks a year instead of 48, who am I going to hire? I am going to hire the people who sell back the two weeks at a good rate, which basically means people without families. That is going to change the work culture of Australia. I find it ironic that a government committed to family values is enacting this kind of legislation.

You might wonder where to find the game theoretical model underlying these views. For this I need to thank a diligent PhD student of mine — Martin Byford — who worked out the bargaining model to analyse the impact of allowing entitlements to be traded. His paper is available here. Utilising an economic model of bargaining (similar to that in my textbook, Core Economics for Managers), he finds that competition in the labour market can mean that these reforms will leave some workers worse off. More importantly, when coupled with minimum wage laws, these reforms may reduce overall efficiency as well. Sadly and perhaps surprisingly, the trade union movement hasn’t shown much interest in these ideas even if the business press has (another irony!).

Martin and I published an op ed piece in The Age last year on this topic (for the non-economist, it is an easier read than the technical paper).

Externalities happen

My Principles of Microeonomics textbook (with Stephen King and Greg Mankiw) uses a dog ‘mess’ example to illustrate the concept of negative externalities. No solution is proposed.

Click here to see the Freakonomics solution. Costly but perhaps effective.

News for Econ Students

News for Econ Students

Just to show that I ain’t that evil, here is another blog with interesting exam ideas and other information for economics students.

I particularly liked this post on price discrimination at Starbucks. I’ll have to ask for a ‘secret’ cappucino the next time I am there.

Beware of sharp predictions (especially about popcorn)

In a recent Slate article (click here), Steve Landsburg puzzles as to why some hotels bundle internet access for free but movie theatres never bundle popcorn for free. He writes: “… in the real world, popcorn, unlike wireless Internet, is never free.” Landsburg goes on:


It’s logically possible that by pure coincidence the
numbers at every movie theater in the world all work out the same way,
while the numbers at hotels work out one way half the time and the
other way the other half. But “pure coincidence” theory is even less
satisfying than the “differential greed” theory. There must be
something I’m missing that makes popcorn essentially different from
Internet access. I remain stumped.Well, here in Australia we can
help him out as the ‘real world’ is different: popcorn is sometimes free.
If you go to those ‘first class’ options such as Director’s Lounge or Gold
Class, the popcorn is free. Of course, your ticket price is higher.

Put here is a more straightforward possibility. Here is a link to an offer I received yesterday from Hoyts. If you pay for your tickets with Visa, the popcorn is free.

So the economic theory that predicts that we should sometimes see free popcorn is correct. It is just Professor Landsburg’s casual observation of the real world that caused a conundrum.

2005 Innovation Index

Richard Hayes (Research Fellow at MBS/IPRIA) and I have updated the Innovation Index. The index is a measure developed initially by Scott Stern and Michael Porter to measure a country’s capacity to innovate. Scott Stern and I did an update for Australia in 2003 and Richard and I produced an update in 2004.

This years Innovation Index is refined further. The bad news is that Australia’s potential has declined — mainly due to a loss in the perceived strength of IP protection. Nonetheless, our ranking with respect to other countries remains unchanged.