Wages and Human Capital in the U.S. Financial Industry: 1909-2006

Fascinating paper by Thomas Philippon (New York University) and Ariell Reshef
(University of Virginia) on wages, skills and technology in the U.S. financial sector over the last 100 years.

Abstract
We use detailed information about wages, education and occupations to shed light on
the evolution of the U.S. financial sector over the past century. We uncover a set of
new, interrelated stylized facts: financial jobs were relatively skill intensive, complex, and highly paid until the 1930s and after the 1980s, but not in the interim period. We investigate the determinants of this evolution and find that financial deregulation and corporate activities linked to IPOs and credit risk increase the demand for skills in financial jobs. Computers and information technology play a more limited role. Our analysis also shows that wages in finance were excessively high around 1930 and from the mid 1990s until 2006. For the recent period we estimate that rents accounted for 30% to 50% of the wage differential between the financial sector and the rest of the private sector.

Technology and the brain

There has been a lot of press coverage recently on how computer usage affects the brain. One of the main proponents of the view that there are negative effects is Baroness Susan Greenfield who believes that the predilection for online living causes shallow, fragmented thinking, “Computer use could be cutting attention spans, stifling imagination and hampering empathy, as a result, the parts of the brain involved in these traits will not develop properly.” Critics argue that her assertions are no more than speculative, with no scientific evidence to support it. A recent paper in Neuron written by cognitive scientists provides an overview of the evidence. They point out that "'technology is damaging the brain / eating our children / harming our culture’ stories are over-simplified to the point of absurdity. No-one could get away with a scare story about the whole of ‘transport’ but you can with ‘technology’ because it plays to our anxious stereotypes". It will be interesting to watch the debate unfold.

Children, Wired: For Better and for Worse

Daphne Bavelier, C. Shawn Green, Matthew W.G. Dye

Summary

Children encounter technology constantly at home and in school. Television, DVDs, video games, the Internet, and smart phones all play a formative role in children's development. The term technology subsumes a large variety of somewhat independent items, and it is no surprise that current research indicates causes for both optimism and concern depending upon the content of the technology, the context in which the technology immerses the user, and the user's developmental stage. Furthermore, because the field is still in its infancy, results can be surprising: video games designed to be reasonably mindless result in widespread enhancements of various abilities, acting, we will argue, as exemplary learning tools. Counterintuitive outcomes like these, besides being practically relevant, challenge and eventually lead to refinement of theories concerning fundamental principles of brain plasticity and learning.

Mac or PC - Should researchers care?

I have been using a Macbook for the last three years. My subjective experience (n=1) has been neutral. It has better battery time than any other laptop I have owned, which is great. But I have not really noticed a definable advantage other than that for someone like me, who mainly uses Office, Firefox, Mail and STATA as my daily tools. Having said that, I know at least one Institute Director who swears by it and many others who have converted and claim that it has helped them be more productive. From the point of view, say, of a researcher starting here in Geary or someone beginning their PhD in Economics and about to purchase a laptop, does it make much of a difference? People tell me that one can simply install Windows on the Mac to get something from both worlds but lets restrict to the choice between Mac computer and default mac operating system versus a standard PC and windows operating system. There are a lot of claims about the relative security of Mac over PC that I can't evaluate. I am interested in whether anyone thinks the choice is an important one for researchers.

Don't worry I am running out of technology issues that interest me so these posts will dry up soon!

Online Lecture Content

A lot of us have been talking about providing online lectures and tutorials to students in our classes. I am going ahead with a limited version of this in my classes this year. Thinking about doing this and looking at the technology aspects has stimulated a lot of thought. Stephen Kinsella has written a lot about his experiences in UL, and has been advocating an idea where students would get the lectures up front as a podcast and the class then could be used to really probe ideas and generate discussion.

In thinking about how to do this, I think a lot of us go with the default option of thinking about something cheap and downloadable that can be used quickly on any computer. I have been working with Camtasia for the Mac (also on PC) and I have found it to be absolutely brilliant. Various people have been giving me tips about how to get it working fully but even the very basic recording is useable. Many readers will know the UCLA STATA tutorials, which are excellent, and recorded using Camtasia.  Another option though is to think of something with much higher production values. Michael Sandel's course at Harvard is still, for me, the best example of making lectures available online that I have seen. I don't know how much Harvard paid for the production but this doesn't look cheap. There is, at least, a professional cameraperson and a very high quality camera and a lot of website development. It is probably possible to do these things that well without much cost but it is worth remembering that thousands of people will be downloading and using these videos for several years so if quality can be improved by spending some money, the default option shouldn't be always that we try to do these things for free.

Again, this is one of those issues that gets people emotional. I have talked to colleagues and some students who believe that online content is the beginning of the end for traditional university education and an ominous development. As I have said here a few times I am a complete optimist for this technology both in terms of the massive expansion in access to quality learning that it opens up but also in terms of how it benefits me personally as a professional. It really is frustrating when half of your interactions with students are made up of very routine things that could be handled more effectively for both parties by directing them to a site. Secondly, it is frustrating for students to try to keep up with technical material that really is not meant to be digested in an hour. When I was watching the NBER videos of Imbens lately, I realised how much better it was to be able to stop the video when you wanted to digest a point or play with some notes. This just simply has to be a better way of learning technical material than a live presentation. Does this mean that Imbens becomes obsolete? No, completely the opposite - it means he has a much bigger audience of people that understand him and also that he can give more lectures about innovative things that he is deeply interested in and less lectures previewing standard material that everyone should know. It also augments standard courses given all round the world in a very effective way.

For me, this is the first year I am really going to try and work with this technology in my courses so I will post a bit on how things are going. More generally, I think figuring out how this technology fits with our careers is a useful thing for anyone in research and teaching to think about.

The Future of American Jobs

This is the first of two conferences organised by the Hamilton Project and the Center for American Progress. This conference took place on April 30th; it addressed the implications of the competitive global economy and rapid technological change for the challenge of creating high-paying jobs in the United States. A link to the conference website including a full event video is available here. The conference programme is outlined below.

8:30 a.m. - 8:50 a.m. Opening Remarks
John Podesta, President and Chief Executive Officer, Center for American Progress
Robert E. Rubin, Co-Chair, Council on Foreign Relations

8:50 a.m. - 9:15 a.m. The State of the U.S. Labor Market
David Autor, Professor of Economics, Massachusetts Institute of Technology

9:15 a.m. - 10:30 a.m. Economic Growth and Job Creation
Alan Auerbach, Professor of Economics, University of California Berkley
Michael Greenstone, Director, The Hamilton Project; Professor of Economics, Massachusetts Institute of Technology
Alan Krueger, Assistant Secretary for Economic Policy, Treasury Department
John van Reenen, Director, Centre for Economic Performance, London School of Economics

Moderated by:
Chrystia Freeland, Global Editor-at-Large, Reuters

10:45 a.m. - 12:00 p.m. The American Worker
Ron Blackwell, Chief Economist, AFL-CIO
Heather Boushey, Senior Economist, Center for American Progress
Larry Katz, Professor of Economics, Harvard University
Cecilia Rouse, President's Council of Economic Advisers

Moderated by:
Greg Ip, U.S. Economics Editor, The Economist

12:00 p.m. - 1:00 p.m. Closing Session
Michael Bloomberg, Mayor, New York City
Lawrence H. Summers, Director, National Economic Council

Moderated by:
Charlie Rose, Host, Charlie Rose

OmmWriter

Thanks to Gerard O'Neill for the tip on Ommwriter, a cross between a meditation package and a wordprocesser. I have been using it for the last couple of hours and it is a nice experience (only available to Mac Users unfortunately!).

link here 

Toward a debate on Science and Technology Policy in Ireland

There has been a large amount of activity in recent weeks debating the extent to which the government should support science and technology in the universities, and the likely impact that such spending will have on the wider economy and society and through which particular channels.

Some of this debate is a continuation of a long-standing discussion on two government strategy documents, the "Strategy for Science, Technology and Innovation" and the "Framework for Economic Renewal" (Smart Economy) document.

Discussion has also likely increased as a result of the opinion expressed in the McCarthy report that there was little evidence of value deriving from R+D activities. The McCarthy report opinion on university research funding is below.

"The two research councils, Irish Research Council for the Humanities and Social Science (IRCHSS) and Irish Research Council for Science, Engineering and Technology (IRCSET) provide funding for researchers in the form of post graduate scholarships, post doctoral fellowships, research fellowships and project based research. The Group supports the CEEU recommendation that the industry co-funding ratio should be increased for IRCSET’s enterprise partnership awards. Further, the Group is of the view that the allocation to the research councils to increase Ph.D. outputs should be reduced because of the uncertainty about the absorptive capacity of industry to employ fourth level graduates and the propensity of Ph.D. graduates to emigrate. The fifth cycle of the PRTLI scheme is due to run over the period 2010 to 2014. This scheme has been in operation since 1998 and there is insufficient evidence of the positive economic impact of the programme to date. Subject to any contractual commitments, this cycle should be cancelled. This will lead to savings in future years as spending on earlier cycles of PRTLI winds down without any new funding requirements arising in their place. The cancellation should also have imfor SFIfunding given that SFI researchers are housed in PRTLI funded infrastructure."

A number of economists have written critical articles about the current direction of S+T policy:

Eoin O'Leary

Karl Whelan

Kevin O'Rourke

Richard Tol

MIchael Hennigan

A number of further articles have defended large scale funding of university research

Luke O'Neill

Ferdinand von Prondzynksi

The importance of this debate cannot be understated, not least for people (many of whom read this blog) who have devoted most of their lives to research and teaching in university contexts. The charge of being a "vested interest" is frequently hurled at people who express opinions in this area. But anyone who works in a university or in research has a vested interest in this, and we have to try to deal with that and put forward coherent views that can be debated. If the charge is true that no-one working in research can express an objective view about how it should be funded and structured then we all should stop now.

It has also been agreed by many on both sides of the debate that if you simply start counting direct revenue generated from university patenting and licensing activities, that you are not going to find a good justification for funding research in universities, certainly not a healthy economic return. It seems to me obvious that Ferdinand von Prondzynski's point is correct that indirect rather than direct measures of benefits from research funding needed to be prioritised. To that extent, we need to start talking about issues such as:

- whether research funding in a university improves the quality and return to education in that university. Related to this, do students who are taught by and interact with top researchers become better equipped to work with cutting edge technologies and so on.

- the extent to which having research groups in Ireland that are embedded into international networks has value is something again I want to debate without assumption. many of us here base a huge amount of our working life on the (untested) assumption that working with international colleagues who are excellent in their field improves our work and improves the quality of knowledge in our respective fields in Ireland. the thing that impresses me when I see some of the better SFI-funded programmes is the international networks that such programmes open up to people in Irish universities. I have to admit that I have always viewed this as having huge value and this is my default assumption. having said that, to argue that a huge amount of money should be spent on developing these networks on the basis of an assumption would be silly.

- the extent to which multinational companies based location decisions on factors such as PhD researchers available, ability to draw from local research groups and so on.

- the extent to which indigenous companies can draw expertise and tools from research clusters based in universities. how much is this happening in Ireland at present?

- the extent to which research funding potentially improves non-market outcomes. For example, to what extent does funding Irish health research impact on hospital functioning and on the integration of global technologies into Irish healthcare. Every time this get's mentioned somebody makes a scoffing remark. My instinct (completely open to being tested and just an opinion) is that medical consultants who are conducting leading edge research (even if in specific areas) are constantly thinking about where modern health technologies are developing and are better equipped to integrate global technologies. Testing this in the Irish case would be very difficult but it is certainly a channel that we would be stupid to dismiss without thinking further about it.

From the point of view of economists, our role is not just to shoot down every claim that isn't 100 per cent backed up. It is also to examine potential channels that generate increases in human welfare and to think about testing them. We should try to put all of the chess pieces on the board before getting fully started on this.

Luke O'Neill on McCarthy Report

Professor Luke O'Neill in TCD criticises the McCarthy report in the Irish Times today

http://www.irishtimes.com/newspaper/opinion/2009/0818/1224252768970.html

His article was picked up by Karl Whelan on the Irish Economy blog

The exchange highlights again the need to get some serious discussion going on the aims of science policy in Ireland and the potential return. Some people are arguing that pure short-term commercial pay-off should be the key metric, which seems ludicrous. For example, we need also to think about the potential return from having more PhD trained people working in the public and private sectors. While the trajectory at present has been for Irish PhD's (and indeed in Europe more generally) to move toward the public sector, we do not know whether this is neccesarily a bad thing. We started in Ireland from a very low base in terms of number of people with PhD qualifications working in the public sector and I dont think we should accept that increasing PhD trained people in this sector is not a good thing to do from a productivity perspective without having a proper debate.

One interesting debate that is beginning to emerge is the extent to which the Irish research funding environment should specialise and the extent to which funding should be conditional on non-academic considerations such as potential commercialisation, policy relevance and so on. In one version, research funding should be allocated to the very best people (say defined by publications) who are willing to locate in Ireland regardless of field or strategic relevance. In this way, we increase the prestige of the universities and put students in contact with leading minds. In another version, the research funders stipulate that certain areas (e.g. in Ireland energy research) are given extra priority because of their strategic relevance. Also, institutions are encouraged to specialise more and in general the funding agencies support increasing the capacities of particular groups in particular areas. This will allow potentially for greater capacity to compete for non-exchequer funds and also increase the likelihood of genuine innovation. Critics in Ireland have argued that the areas chosen are the wrong ones (e.g. Richard Tol has argued that much of the energy research agenda is misdirected). Also, critics have argued against the process by which these priorities are decided. Furthermore, the McCarthy report has argued that there is too much money devoted to administration and that the commercial activity has been too low.

We are not going to solve this issue in one blog post, but I do agree with Shane O'Mara's comment on the Irish Economy blog that we need to consider potential indirect effects (see e.g. paper on earnings effects of going to a good research university http://ideas.repec.org/p/iza/izadps/dp4043.html) when assessing the impact of research funding. He also posts to a Welcomme Trust report on the economic value of medical research, which I will comment properly on a later stage - link here

What motivates scientists to commercialise?

The current edition of "Research Policy" has a number of papers on determinants of scientists moving into commercial activity

The determinants of academic research commercial performance: Towards an organizational ambidexterity perspective
Pages 936-946 Yuan-Chieh Chang, Phil Y. Yang, Ming-Huei Chen

Academics or entrepreneurs? Investigating role identity modification of university scientists involved in commercialization activity
Pages 922-935 Sanjay Jain, Gerard George, Mark Maltarich

What drives scientists to start their own company?: An empirical investigation of Max Planck Society scientists
Pages 947-956. Stefan Krabel, Pamela Mueller

Gerard O'Neill on Smart Economy

It is characteristic of a healthy society when intelligent people from different sectors begin to debate openly using clear language.

Gerard O'Neill's posts attacking the idea that science policy, conceived of as providing large scale funding for basic technology research, are worth reading for an articulate account of this side of the debate. Gerard has been particularly influenced by the thinking of Amar Bhide and argues that more focus and support on basic application and combination of technologies will lead to higher returns for society than major scale investment in basic technology research and training of PhD and postdoc researchers.

link here

A few points on this are worth making:

- The SSTI target is to double the number of PhD's in Ireland. This will eventually lead to about 1,300 people per year receiving PhD's in Ireland. We don't yet have a sense of how large a number this. One sometimes gets a sense from the debate that 50 per cent of the population will be taking PhD's in the future and we should get some perspective on these numbers. Several blogs and newspaper articles (including letters from the Times) have been posting comments from PhD graduates to the effect that they regret taking their PhD and feel hard done by. Personally, I have never once for a minute regretted doing a PhD even when I was on postdoctoral contracts and trying to build a career and the majority of people I know who went this route feel the same. Again, only anecdote but there are two sides to the PhD story that need to be heard and the evidence is certainly not conclusive on either side of the debate as to whether to incentivise more people to pursue PhD education in Ireland.

- Also, the rhethoric around basic research in Ireland disguises the fact that much of even SFI, PRTLI funded research is relatively applied. Is it possible that a lot of what Bhide is talking about already characterises Irish research, which is far more applied in nature than would be the case in the very elite US universities.

- We do not know yet the extent to which training in scientific research groups will provide people with the types of skills to combine global technologies and add value to them to bring them to market. Figures looking at the percentage of PhDs going into industry (such as those cited in the McCarthy report) are interesting but we need to think more. For example, as a basic issue it is not neccesarily a bad thing to have PhD trained people going into the public sector. Also, merely counting the numbers masks an awful lot of the process, particularly with innovation.

- Science advocates are claiming that multinational corporations are coming to Ireland directly on the basis of university based research being conducted here. I'm sure we could fill a blog post with very good examples, but has anyone attempted to estimate this and examine the scope and size of research-contingent investments?

- Gerard argues that Irish universities are ineffective and poorly run. Again, I don't think this is established in any sense. Many people seem to have made up their mind that government policy in this area is flawed and that the universities will not be able to achieve many of the targets even with the resources. Nobody should have reached conclusions yet on any of this.

Sorry that most of the posts for now are of the "more evidence needed" variety but this will change over the next months. If anyone has suggestions for developing further aspects of this debate please let me know.

Science, Technology and Well-Being

A cross-over between many of the debates we have been having is the extent to which science technology will improve well-being. This issue is addressed by John Holdren in his address to the American Association for the Advancement of Science last year, printed in Science magazine. The Irish debate often veers into trying to threaten people to take up science subjects on fear of becoming obsolete. Motivation by fear may or may not be effective, but it has created some unsettling images in the minds of many in the general public. The view that scientific progress will be manipulated by an elite to benefit themselves aided by large-scale government subsidies and redirection of public educational resources is something that has lodged in the minds of many people who comment on various blog forums in Ireland. Going back to the previous discussion, understanding public trust in science and technology institutions may be more important than we think. Part of this process will need to involve a continuous debate about who pays for science and technology and who benefits.

The Holdren article below outlines the tasks that science will address over the next number of years and the importance of the scientific effort. This article gives a refreshing global sweep of the importance of the scientific effort. Much of the discussion is at a very broad level and it is directly intended as advocacy for promotion of science so the usual disclaimer about focusing on the specifics applies. Having said that, it is interesting to think about science and technology in the broad levels set down here, particularly as it pertains to the issues of human well-being. Some of the recommendations (but please read the article as a summary is always wrong in a sense) include the following.

- greater awareness of economic, socio-political and environmental conditions and processes in terms of the link between scientific inquiry and human well-being

- greater focus by scientists on the major threats affecting human well-being

- greater attention on promoting S+T literacy

- better undergrad training

link here

Reminder: iQ Prize of €10,000 to Help A Good Idea

I mentioned before that Irish firm iQ Content are offering €10,000 for a good business idea. They are offering the iQ Prize for the country’s best new tech idea. The idea can be anything that’s internet-based; more details are available from www.iqprize.ie (no strings attached). There are 76 entries so far and 3 days to go. The closing date is Tuesday May 12th. See the video below to hear Morgan from iQ Content discuss why the competition was set up.

How Applied Research Can Help To Revive The Economy

Damien Mulley links to the new Enterprise Ireland blog on research commercialisation. The blog mentions that Enterprise Ireland are currently working on getting this year’s applied research forum organised (to be held on June 18th). The website is live and posters have gone out to the colleges to advertise it. The main focus is on how applied research can help to revive the economy.

Also, Enterprise Ireland has commissioned a special award called 'One to Watch'. The 2009 winner will be announced at this year's Applied Research Forum. The winner of 'One to Watch' 2008 was Dr. Declan Dagger from Trinity College Dublin. Dr. Dagger and his team developed a new personalised e-learning tool to tackle the challenges presented by the fact that no two people learn the same way. A new company called Empower the User has since been formed around the technology with Dr. Dagger in the position of CEO.

Competition Time

A recent post on the Freakonomics blog links to a competition organised by the Fraser Institute which seeks proposals on what economic or public policy issues should be measured. First prize (sponsored by the R.J. Addington Center for the Study of Measurement) is $1,000 and there are five runners-up prizes of $500. (The closing date is May 15th).

Also, a recent article in the Irish Independent describes how an Irish firm is offering €10,000 for a good business idea. The firm is iQ Content, and they are offering the iQ Prize for the country’s best new tech idea. The idea can be anything that’s internet-based; more details are available from www.iqprize.ie (no strings attached). There are 15 entries so far and 42 days to go.

And don't forget, this Friday is the closing date for the HEA/Irish Independent competition for research students --- to win one of two €2,500 travel awards. What needs to be done? Your research - what difference does it make?

To Tweet, or Not to Tweet

We have discussed the technology developed by Twitter.com before (here), with a particular emphasis on the information that can be generated from the search tool (using applications from Summize Labs). Since then Summize Labs was acquired by Twitter (see the story from the Twitter blog here). One used to be able to enter a topic in the Summize Labs search engine to find up-to-the-second "tweets" about that topic, then automatically analyze the tweeted attitudes. According to the story on the Twitter blog, they said they would add search and its related features to their core offering. So far, all I can see available is a limited search application (here), which also shows some trending topics. if anyone is aware of other features that are currently available, I would be interseted to hear about them.

Besides using Twitter data in novel applications, we have also discussed offline how Twitter might be a useful tool at academic (and other types of) conferences. The essence of Twitter is not to provide data for social scientists; rather - it is about sending a series of thoughts - each of 140 characters or less - to a network of friends (using a laptop or mobile phone). Importantly, anyone can listen in - you can send a universal text message to the whole planet - as James Harkin describes it in a recent Times article. The article also covers an apparent backlash against the use of Twitter. The criticism is "why would anyone want to dedicate time informing everyone in the world what he or she is up to at any given moment?" The answer, is the idea of “being in the loop”.

A Sunday Times article from yesterday (by Andy Pemberton) further develops the criticisms that are being made about the use of Twitter. According to Pemberton, it’s a fair question to ask "what kind of person shares information with the world the minute they get it? And just who are the “followers” willing to tune into this rolling news service of the ego?" Pemberton mentions the suggestion by clinical psychologist Oliver James that “twittering stems from a lack of identity. It’s a constant update of who you are, what you are, where you are. Nobody would Twitter if they had a strong sense of identity.” According to Dr David Lewis, a cognitive neuropsychologist and director of research based at the University of Sussex, “using Twitter suggests a level of insecurity whereby, unless people recognise you, you cease to exist."

The criticisms above may seem somewhat extreme to avid Twitter users - and maybe Twitter is just an added layer of online social capital, or a bit of fun, for most users. I've blogged recently (here and here) about personality and usage of online social networks such as Bebo or Facebook; a similar study on Twitter usage could be illuminating. Alain de Botton (author of Status Anxiety) offers the most sanguine comment in the article by Andy Pemberton: “Perhaps closeness is not always possible, or desirable. Twitter gives us another option. It says: I want to be in contact with you, but not too much. It’s the equivalent of sending a postcard.”

Finally, in terms of how Twitter may be useful for conferences and other activities, the Pemberton artcile mentions that companies such as Starbucks have been quick to recognise the marketing potential of Twitter; even think tanks such as the Institute for Public Policy Research have begun using twitter to publicise their activities.
Despite the criticism from some quarters, Twitter boasts 6m users — small compared to Facebook’s 150m — but its audience has surged by more than 1,000% in the past year. Right now, the San Francisco-based company that owns Twitter is valued at $250m, its inventors recently rejected an offer from Facebook to buy their company for $500m. The article by James Harkin is followed with a short piece by Mike Harvey, which contains five tips for those who wanted to start tweeting.

The Irish Diaspora and Irish Economic Recovery

In today's Irish Times, Rob Kitchin and Mark Boyle (from NUI Maynooth) write about enriching relations with the Irish Diaspora. Diaspora networks could play a useful role in Irish economic recovery, in relation to exchange of knowledge and know-how. Of particular interest is the Irish Technology Leadership Group, which ivolves Irish people in senior positions in Silicon Valley, who are seeking to invest in Irish companies. This group could help potential Irish start-ups to learn about issues such as commercialisation and technological transfer.

According to Kitchin and Boyle, many countries around the world are putting diaspora strategies into place. Several of these countries – Australia, Chile, India, Jamaica, Lithuania, New Zealand, Scotland, plus the World Bank – are attending a workshop on diaspora strategies today and tomorrow, organised by NUI Maynooth. Rob Kitchin is director of the National Institute for Regional and Spatial Analysis at NUI Maynooth. Mark Boyle is professor of geography at NUI Maynooth. Their working paper outlining a potential diaspora strategy for Ireland can be accessed here.