Tuesday, April 21, 2009

Risk-Return Cluelessness*

Male employment is more volatile than female. Men get paid more.


This is a classic risk-return trade-off.

Yet the legacy media is painting this as some sort of bizarre social contract in need of reform.

Here’s the normally lucid Financial Times; I’ll start with the fact in the article:

Men have lost almost 80 per cent of the 5.1m jobs that have gone in the US since the recession started …

Then we get this:

This is a dramatic reversal of the trend over the past few years, where the rates of male and female unemployment barely differed, at about 5 per cent. …

So … what they’re saying is that when we’re at full employment just about everyone has a job.

It also means that women could soon overtake men as the majority of the US labour force.

Gee … my guess is that this will be true until it isn’t any more.

Back to facts:

Men have been disproportionately hurt because they dominate those industries that have been crushed: nine in every 10 construction workers are male, as are seven in every 10 manufacturing workers. These two sectors alone have lost almost 2.5m jobs. Women, in contrast, tend to hold more cyclically stable jobs and make up 75 per cent of the most insulated sectors of all: education and healthcare.

“It shields them a little bit and softens the blow,” said Francine Blau, a labour market economist at Cornell University.

Francine Blau is an excellent economist, but the reporter seems to have missed the point that there is a trade-off here:

The widening gap between male and female joblessness means many US families are solely reliant on the income the woman brings in. Since women earn on average 20 per cent less than men, that is putting extra strain on many households.

So … let me get this right … households have sorted themselves so that they can choose a volatile high compensation job and a less-volatile lower compensation job. Sounds like portfolio diversification applied to permanent income to me.

* I cross-posted this from my non-class blog. It’s a bit too specific for this class, but it’s good exposure to the sort of nonsense you should be able to filter through in the media.

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