No, John is not responsible for gender gaps

Gender baiting has launched again in the United States, but this time it’s personal. Quite literally – the oppressors’ names are John.

From The New York Times:

Fewer large companies are run by women than by men named John, a sure indicator that the glass ceiling remains firmly in place in corporate America.

Among chief executives of S.&P. 1500 firms, for each woman, there are four men named John, Robert, William or James. We’re calling this ratio the Glass Ceiling Index, and an index value above one means that Jims, Bobs, Jacks and Bills — combined — outnumber the total number of women, including every women’s name, from Abby to Zara. Thus we score chief executive officers of large firms as having an index score of 4.0.

The NYT didn’t stop there; the article goes on to use its new Glass Ceiling Index to compare political successes, too:

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I have to hand it to the NYT - this is an excellent propaganda piece. Determining the success and advancement of women in their careers to how those numbers compare to men named John, Robert, James, and William gives you some pretty damning results.

Left-leaner’s will find any opportunity they can to blame the sexism and discrimination that is still rooted on our society on employers and business culture; that way they can legislate quotas and pay structures across the board, and at least create the illusion, through force, that equality exists.

But evidence, even from the NYT’s own sources, suggests that employers are not the problem.

The NYT’s report was “inspired by a recent Ernst & Young report, which computed analogous numbers for board directors…for every one woman, there were 1.03 Jameses, Roberts, Johns and Williams — combined — serving on the boards of S.&P. 1500 companies.”

Lets look at that report a bit closer. It is the case that the number of male directors at S&P 1500 companies is hugely disproportionate to the number of female directors (84%/16%), but there is also evidence that the tide is changing. The graph below details that while far more men hold directorships, they also tend to be significantly older in age; 49% of female directors at these companies are under the age of 60 (compared to only 33%) of men, and 31% of male directors are over the age of 68 (compared to only 11% of women).

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Like many other occupations, a lot of perceived gender gaps are going through transitional periods; as women become more educated than men, we start to see changes in occupation breakdowns (but it’s not in the interest of gender-baiters to report it).

My colleague Ben has recently blogged on a paper that found if you control for a person’s background and length of time in the work force, “being female increases the chance of becoming CEO. Hence, the unconditional gender pay gap and job-rank differences are primarily attributable to female executives exiting at higher rates than men in an occupation where survival is rewarded with promotion and higher compensation.”

It’s not employers and it’s not corporate culture that’s holding women back; the reality is that women are making different choices than men. Many of them have to do with family planning, but many of them come down to different goals and ambitions.

Examples include both political and career ambitions. Women and men “win elections at equal rates, raise comparable amounts of money, and receive similar media attention” yet very few women are wanting or willing to run for pubic office. Research conducted in 2012 found that millennial women “just aren’t very interested in being the top executives of high-profile companies.” Of all the women aged 22-33 polled, only 15% actively wanted to lead a large, prominent business one day.

The NYT can use the Johns and Jameses of the world to paint political and market systems as sexist all they want, but their provocative Index completely misses the point. Women are choosing not to take their careers as far as they can go. And that’s okay – if that choice makes them happy and gives them opportunity to peruse other meaningful things. But the real glass ceiling for women is being held up society at large, which often compels women from a young age to make different decisions than men.

Are women being educated about their career options properly? Do they feel supported to have kids (or not have kids) on their own terms? These are the issues that are really holding women back. If we actually want to address gender gaps in the work place, let’s let John get on with his job while we tackle our deeply entrenched, and often bias, cultural norms.

How we wish for financial literacy amongst the commentariat

From a certain Ms. Orr:

The government is thrilled that it has found a buyer for the Treasury’s 40% stake in Eurostar. And no wonder. An Anglo-Canadian consortium has offered to pay £757m. In the autumn of 2013, when the coalition first announced its plan to sell, it expected to raise £300m. Which looks like prima facie evidence that the government doesn’t have much idea about how valuable national assets are. It’s all, says the chancellor, George Osborne, “part of our long-term plan to secure Britain’s future.” To an idiot such as myself, it looks like part of a long-term plan to secure the future of Patina Rail LLP.

But in the long term, selling off state-owned, profit-making assets can only ever make the government all the more dependent on tax revenues. As ever, profit gets privatised and risk or liability remains the business of the state…..Osborne has said that this money will in part be invested in infrastructure. Great. When that money has been spent on some infrastructure, when the risk is over and the profits are starting to flow, that in turn can be sold to the private sector,….

Well, yes.

What seems to be missing from Ms. Orr’s understanding is that the £750 million the government will receive is the net present value of all future profits that are expected to be made by the line. In fact, looking at 2014 profits, it looks like some 35 times annual profits or so on that 40% stake. Which is a very fine price indeed to achieve.

Now, we’re not really fans of the government building or running railway lines but let us suppose that you are. You also note that government can borrow cheaply, has the ability to pass laws over rights of way and so on. It is thus cheaper for government to take that early risk in the planning and set up of a new line. Once the line is up and running then the multiple of future profits which it is worth is very much higher than it was at the beginning, when there were still risks as to whether it would be finished, find a customer base and so on.

So, government invests at, say, a multiple of 10x future profits, brings the project to fruition and then sells it at 35x future profits. This looks like a very profitable indeed deployment of the government’s special privileges over financing and the law.

That is, the sale of such a project once completed is an excellent idea.

Now, we all know why this doesn’t happen in general. Government ends up investing in projects for political, not economic reasons. Cost management on public contracts is ghastly and they are therefore always over budget (I am told that the last one to come in under time and under budget was Polaris, which we bought lock, stock and barrel from the Americans).

However, this doesn’t change the fact that if as and when government actually does manage to produce a profit making enterprise then it really should sell it. For that’s the best way to capitalise upon those special attributes that government has.

By the way, it’s worth noting that this stake was sold at something like 35 times last year’s attributable profit. Not 35 times the income, whatever that lower number will be, from holding the stake. It’s thus a very good deal indeed.

But our wish here is that the commentariat would actually understand the financial basics here. The capital sum you sell for is the net present value of all future profits. We’re simply swapping money today for money in the future, that’s all.

Economic Nonsense: 20. Only government intervention can address the gender pay gap

There was a gender pay gap when the work required physical strength. This is because men are, on average, physically stronger than women. They are more capable of hauling a plough or heaving a sack of coal. When work meant physical labour for the most part, men were economically worth more. They were not intrinsically worth more, it was just that, on average, their labour could add more value than that of a woman. They were paid higher wages because of this.

As physical labour has been made easier by machines, and desk jobs and service industries have become more significant employers than heavy industry, the labour of women has been more equal to that of men, and their pay has risen accordingly. In Britain today there is no significant gender pay gap. Women in their 20s earn a little more than their male counterparts.

There is a pay gap as they grow older, but this is a maternity pay gap, not a gender pay gap. Women who take time out of their careers to have and raise children earn less over the years than those who do not. This is for most of them an option they have chosen to exercise. Most do it because they want to, trading the higher salary that might otherwise result for the greater satisfaction and happiness engendered by starting a family. As they take time out of work, they mount the promotion ladder more slowly than their counterparts who make uninterrupted progress.

It is very important when looking at the statistics on this to compare like with like, that is to compare full-time employment with full-time employment. Some women prefer part time jobs because they offer better opportunities to achieve the balance between work and family that they seek. Part time jobs tend to pay less than full time employment, creating the erroneous impression that women are being paid less for the same type of work and the same amount of it. They have chosen a lifestyle that pays less because they prefer to have children be a part of it.

Who rules Britain: how much of our law comes from Brussels?

Business for Britain was right, on 2nd March, to question the proportion of our laws that comes from Brussels. Nigel Farage says it is 78%, Nick Clegg 7% and the House of Commons Library 13.2% but that is also an understatement due to the Library’s omission of no less than 49,699 EU Regulations, during the same 21 years to 2014. EU Regulations are not approved by Parliament and thereby escape the Library’s attention. From that, Business for Britain concluded that 65.7% of our legislation comes from Brussels.

The figures, in fact, get murkier because the Library also seems to have omitted up to 2,000 statutory instruments a year, which would offset most of the swing. SIs are the UK equivalents of EU regulations: both are secondary or “delegated” legislation and cover a broad range of rules from laws in the full sense to temporary road closures. SIs can even be used to repeal primary legislation.

The proportion from Brussels is really beside the point, namely the total number of rules both from Brussels and Whitehall. Governments claim they will staunch the flow but little is done. Surely by now we must have enough laws?

Curiously, so far as business regulation is concerned, Whitehall is the bigger offender. In 1972 we signed up to a Common Market. That is the one bit of the EU we all like and let us hope that, and not much else, survives the EU renegotiation. A single market must have a single set of rules governing that market. You cannot have a single market if everyone makes their own. The market-maker is the EU and it is no more a loss of sovereignty to conform to their rules than, say, playing by the club’s rules when one joins a poker club. Sovereignty is being able to opt out.

Business, like poker, is competitive so it is crazy to add ones own rules, hobbling one’s own business, to those required by the club. Telling the others at the table that you will never raise on, say, two pairs, stacks the odds against you. For this reason, counter-intuitively, it would be best if 100% of business regulation came from Brussels.

If a regulation is needed in the UK then we should ensure Brussels adopts it for the rest of the single market. If the others think it is unnecessary, we should think again. Rather than dreaming up its own business regulations, Whitehall should be staunching the 4,000 a year flow from Brussels and ensure that what does get through will deliver the open, fair and competitive single market we need.

Not only can we ditch all UK business regulations not required by the EU, but, with all that new free time at their disposal, our civil servants can be out and about in the capitals of Europe developing best practice, closer working relationships and, in consequence the simplest and best set of rules. In this game, fewer is better as anyone who witnessed the FSA contribution to the banking crisis can testify. Indeed, they will not need desk space in Whitehall, probably the most expensive in Europe, any longer.

There is little truth in widespread view that we must accept EU legislation without demur, beyond fine tuning directive-based legislation a bit. The European Scrutiny Committee of MPs “assesses the legal/political importance of EU documents, deciding which are debated, monitoring the activities of UK Ministers in the Council and keeping developments in the EU under review.” In other words, it is supposed to be briefed with EU Regulations in draft and seek to amend those not in the UK interest. How often does it do that? Hardly ever is probably a generous estimate. When that doughty EU fighter, Sir William Cash, became chairman, some of us hoped for action, but no, he was overcome by the same torpor as overwhelmed his predecessors.

In short, Business for Britain are right to complaint about the excess of regulation from Brussels but we should complain even louder about the excess from Whitehall and Parliament’s spineless defence of British business.

Adam Smith: also right about watches

In Book One of the Wealth of Nations, Adam Smith writes:

The diminution of price has . . . been most remarkable in those manufactures of which the materials are the coarse metals. A better movement of a watch, that about the middle of the last century could have been bought for twenty pounds, may now perhaps be had for twenty shillings.

He is looking at a particular industry to verify his claim that there had been sustained productivity movements over time. And it also functions as a nice argument in two economic history debates: whether sustained productivity improvements came first with the Industrial Revolution; and whether productivity was centred around a few key industries (coal, cotton) or was a more general phenom.

A new paper from Morgan Kelly and Cormac Ó Gráda, entitled “Adam Smith, Watch Prices, and the Industrial Revolution” (pdf) looks into the values people gave to the police when their watches were stolen, and finds that prices trended down steadily, consistent with rising productivity. Indeed, assuming quality trended up too, the numbers they get are pretty close to Smith’s.

To test whether watch prices had been falling steadily and steeply since the late seventeenth century we use the records of over 3,200 criminal trials at the Old Bailey court in London from 1685 to 1810. Owners of stolen goods gave the value of the items they had lost, and, because watches were frequently stolen, we can reliably track how their value changed through time.

Contemporaries divided watches into two categories, utilitarian silver or metal watches; and more expensive gold ones. Adjusting for inflation, the price of each type of watch falls steadily by 1.3 per cent per year, equivalent to a fall of 75 per cent over a century.

If we assume modest rises in the quality in silver watches, so that a watch at the 75th percentile in the 1710s was equivalent to one of median quality in the 1770s, we find an annual fall in real prices of 2 per cent or 87 per cent over a century, not far from what Adam Smith suggests.

Most of the cost of a silver watch was the labour involved in cutting, filing and assembling the parts, so we can gauge the rise of labour productivity in watch making by comparing how the price of a watch fell relative to nominal wages. During the period 1680–1810 real wages were roughly constant so this rise in labour productivity is similar to the fall in real prices of watches.

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I find the whole area very interesting and fruitful. And, as ever, it’s nice to see Smith’s educated conjectures backed up by hard data.