Why Google spends more to hire and what they buy

This review of a book in the WSJ describes Google's hiring practices. After reading it you may ask How well your employer screens prospective employees. Here are some highlights.

1. "The biggest predictor of whether you'll succeed, Laszlo Bockoutlines in 'Work Rules!,' is how you fare in a sample work test. 
2. "... Google wants generalists. The company prefers 'clever and curious over someone who actually knew what he was doing.' In other words, they want people who will try something new.
3. "Top performers are doing well where they are; odds are they are enjoying it and being suitably rewarded. Google therefore strives to identify those top people—those passive job seekers who aren't thinking about applying to work at Google (or often anywhere else)—and cultivating them, sometimes over years.
4. "... while Google spends more than most on recruiting, it spends far less on training. Top people need less training. 
5. "Recruiters at top companies, who are usually inundated with résumés, often limit where they recruit from and the avenues from which to apply. Mr. Bock says that's a mistake: The right policy is to increase access; just have smarter filters. In Google's case, this involves using an internal tool called qDroid that provides interviewers with pre-formulated questions. Alongside administering the all-important sample work test, Google strongly recommends that its interviewers assess for cognitive ability, conscientiousness (will an applicant see a job through to completion?) and leadership. Notably, Mr. Bock writes that the company today prefers 'to take a bright, hardworking student who graduated from the top of her class at a state school over an average or even above-average Ivy League grad' because Google prioritizes resilience and overcoming hardship."

Supply and demand at work in the labor market

Here are some additional questions:

1. How does an increase in the demand for restaurant meals affect the extra revenue generated by an additional worker?
2. How would the change in the extra revenue generated affect the demand for workers?
3. How would the change in demand affect the equilibrium wage?

Wages Rise at Restaurants as Labor Market Tightens 
by: Eric Morath and Jeffrey Sparshott
Feb 28, 2015
Click here to view the full article on WSJ.com

TOPICS: Labor Markets

SUMMARY: Wage growth is breaking out in an unexpected corner of the U.S. economy: the nation's restaurants and bars. Food-service employment has surged since the recession ended six years ago.

CLASSROOM APPLICATION: Students can use supply and demand for unskilled workers to evaluate the effect of increased demand on the wages of these workers. The article makes two interesting points for instructors to emphasize. First, skilled workers with restaurant jobs are frequently looking for work in other fields. Hence, the market for skilled workers employed in the restaurant industry could be broader than just the restaurant industry, while the market for unskilled workers employed in the industry could be dominated by the industry. Second, rising pay at restaurants "doesn't necessarily translate into higher wages at call centers or in banking," said Kevin Kliesen, economist at the Federal Reserve Bank of Kansas City. Rising wages for servers, dishwashers and cooks typically are a result of strong demand for labor in other fields, not a leading indicator signaling that pay will grow more broadly.

QUESTIONS: 
1. (Introductory) What factors are driving the increased demand for restaurant meals?

2. (Advanced) What factors are driving the increased wages in the restaurant industry for unskilled workers? What factors are driving the increased wages in the restaurant industry for skilled workers?

3. (Advanced) How do economists determine whether to establishments, possibly in different industries, are in the same labor market for attracting skilled workers? Is the market for skilled labor employed in the restaurant industry broader than the market for unskilled labor employed in restaurant industry?

Reviewed By: James Dearden, Lehigh University

SAP cuts jobs

This article from Bloomberg reports that SAP is cutting jobs. It describes how the software market is shifting from sales to cloud-based licensing.

Australia reconsiders its minimum wage

After reading this article students might consider whether low economic growth, high minimum wage, or a combination drives up the unemployment rate?

The Outlook. Australia Weighs Whether Its Minimum Wage Is Too High
by: Rachel Pannett
Jan 27, 2015
Click here to view the full article on WSJ.com
TOPICS: Labor Markets
SUMMARY: The Outlook: Higher minimum-wage supporters in the U.S. often point to Australia as a low-unemployment country with one of the world's highest pay floors. Now, joblessness in Australia is rising, and some are calling for a decadelong slowdown in increases to the minimum wage.
CLASSROOM APPLICATION: Students can evaluate the effect of an increase in a country's minimum wage on the country's employment level.
QUESTIONS: 
1. (Advanced) What is the effect of an increase in a minimum wage on employment levels? Does the answer depend on the price elasticities of demand and supply for labor?

2. (Introductory) What are possible explanations for increases in Australia's minimum wage being contemporaneous with high employment levels in the country?

3. (Advanced) The column notes the relationship between the rate of increase in a country's minimum wage and its inflation rate. Why is it important to compare the increase in a country's minimum wage and its inflation rate?

Reviewed By: James Dearden, Lehigh University

Does the minimum wage spur automation?

This opinion in the WSJ argues that on effect of the minimum wage is for employers to substitute capital for labor.

Earned Income Credit v. Minimum Wage

This opinion in the WSJ argues that expanding the earned income credit to childless workers would be a more effective way to reduce poverty than increasing the minimum wage.

Here are some good questions.

1. Describe the earned income tax credit. What are the advantages of the earned income tax credit of the minimum wage in raising incomes of the working poor?
2. What is the effect on the incentive to work of the earned income tax credit compared to payments for not working?
3. The opinion piece's author is research director of the Employment Policies Institute, which receives support from restaurants, foundations, and individuals. Would restaurants favor increases in the earned income tax credit? Why would restaurants oppose increases in the minimum wage?

4.  Who "loses" if the earned income tax credit expands? Who "wins"?

5.  Who "loses" if the minimum wage increases? Who "wins"?

Is college worth the cost?

This report says that the answer is a qualified yes, with a 2-year degree being a better bet than a 4-year degree for many people, and majors that stress analytical and quantitative skill (cough, economics) being better bets than majors that do not: 

Seattle Raises Minimum Wage

This article reports that Seattle raised the minimum wage there to $15 / hour. Who gains and who loses?

As Wage Debate Rages, Some Have Made the Shift

This article in the WSJ reports the effects of local minimum wage laws that set the minimum above the national rate. The effects vary, some good - higher moral and better customer service - and some bad - closing stores, fewer hours, higher prices, from location and business type.

SUMMARY: In cities where local wages exceed the national minimum, the consequences are big and small, cutting across everything from the number of hours assigned to employees, to menu prices to food ingredients. The article cites a paper in Review of Economics and Statistics: "The reaction among San Jose employers [to an increase in the city's minimum wage] was largely in line with a study of 288 areas where the minimum wage differed across county borders. The research, published in the Review of Economics and Statistics in 2010, found municipalities with higher pay didn't suffer job losses among low-wage restaurant workers. Nearly half of all minimum wage-earners work in food service."

CLASSROOM APPLICATION: Students can examine the effect of an increased minimum wage on firm decisions. "The real-world impacts [of an increased minimum wage] can vary: Some companies had no difficulties passing along labor-cost increases while other businesses said they might close marginal stores to pare losses.... For businesses in San Jose, the results aren't entirely negative. Low-wage employers in the city have raised prices and trimmed costs, but some also report improved employee morale and better customer service."

QUESTIONS: 
1. (Introductory) What is the effect of an increase in the minimum wage on the supply of fast food? What is the effect of the change in supply on the price of fast food?

2. (Advanced) Suppose an increase in the minimum wage results in a $0.25 increase in the marginal cost of making a hamburger. How does the increase in the equilibrium price of hamburgers due to the increase in the minimum wage depend on the price elasticities of supply and demand?

3. (Advanced) Why are some fast food establishments increasing prices in response to increases in the minimum wage while others are cutting back on the number of employees? Why could each of these two responses possibly be profit-maximizing?

4. (Advanced) Is it possible that an increase in the minimum wage does not result in layoffs? Does the article offer good evidence that an increase in the minimum wage does not result the decreased demand for labor?

Input prices rise in the energy industry

This article from the WSJ reports that "Labor and capital costs have doubled over the last decade" for energy companies. It is a good introduction to supply and demand and derived demand for inputs. It is also a illustration of why the long-run supply in perfect competition might slope upwards.

If the document does not load correctly, do a Google search for the title.

SUMMARY: The energy industry loves to think big and tackle risky projects, but the number of those projects now underway is leading to soaring costs for people, materials and services.

CLASSROOM APPLICATION: Instructors can use the article to demonstrate that an increases in the demands for labor and capital cause short-run increases in wages and rental rates on capital. With increases in oil exploration and production, the demand for labor and capital increases. Therefore, in the short run, wages and rental rates on capital increase, thus increasing the short-run average cost of oil exploration.

QUESTIONS: 
1. (Advanced) What factors are causing the increased demand for labor and capital in the oil and gas industry?

2. (Advanced) What is the effect of the increased demand for labor and capital in the oil industry on the equilibrium wages and rental rates in this industry?

3. (Introductory) How will increased wages in the oil and gas industry affect the number of students majoring in chemical engineering and petroleum engineering?

Is LeBron James underpaid?

The catchy title to this story from Planet Money says, "yes".

Are interviews effective screens of job candidates?

This article reports flaws of basing hiring decisions on interviews and offers a couple of alternatives. It is a good introduction to the use of screening in the job market.

Obama, Walmart, and screening

This article reports that President Obama has reached an agreement with some large firms to "establish best practices" for firms to follow when people with gaps in their employment history apply for jobs. (I guess. The article does not state exactly what the practices would cover.) "'[F]olks are looking at that gap in the resume and they're weeding them out before these folks even get a chance for an interview,' said Obama."

This article is a good introduction to screening, asymmetric information, and adverse selection.

Here are some interesting questions.

1. Why would employers use employment gaps as a screen?
2. Do you think that the screen is efficient? If not, what is a better way to screen applicants. Remember to consider the cost of applying the screen when measuring efficiency.
3. Do you think that the screen is more effective following periods of high unemployment or periods of low unemployment?
4. Do you think that the screen is more effective for older workers or younger workers?
5. Do you think that the screen is more effective for men or women?

Another way to screen job candidates

Jokes? Click here.

A positive review of "modest" increases in the minimum wage

This opinion from the NYT supports Obama's proposal to increase the minimum wage. It states that the evidence shows that the impact of modest increases in the minimum wage is insignificant and describes recent studies that provide a series of possible explanations. 

I wish that the effect was not limited to modest increases in the minimum wage. I wonder if, given the variations in employment driven by technological change, the business cycle, and demographics, statistical tests may not be able to identify the small change in employment that a modest increase in the minimum wage might cause. 

The evidence claiming that the minimum wage reduces employment opportunities suffers flaws as well. Opponents of minimum wage legislation often cite the high rates of unemployment of young people and African-Americans and the increase in these rates relative to our history before minimum wages. Perhaps other factors explain these rates and their increase.

Obama wants to raise the minimum wage

This article describes Obama's support for an increase in the minimum wage to about $10. 

Is it a good day for low wage workers?

This article in CNN starts by announcing that increases in the minimum wage passed by two localities is a good day for low wage workers.It might make a great natural experiment to determine the effect of increasing the minimum wage. All we need is a control locality that is otherwise similar and has not increased its minimum wage.

Two cheers for sweatshops

This account describes the advantages of sweatshops in less-developed countries.

Unions and Minimum Wage

This article in the WSJ identifies two reasons that unions support increases in the minimum wage.

1. The wage paid in many union contracts is pegged to the minimum wage. As the minimum wage rises, so dos the union wage.
2. Paying less skilled workers more increases the demand for highly skilled unionized labor.

Harkin on Minimum Wage

In this editorial from USA Today, Sen. Tom Harkin argues that the Federal government should increase the minimum wage to something higher than $9 per hour, the current proposal. Here are some quotes two paragraphs near the end of the editorial.

• Raising the minimum wage is one of the simplest and most effective ways to help working families succeed.
• Contrary to publicized myths, research proves that increasing the minimum wage will not cost us jobs; in fact, our proposal would create at least 100,000 jobs through increased consumer spending.

An argument against a higher minimum wage is doomed to failure if his statements are correct. According to Harkin, a higher minimum wage helps "working families succeed" and creates jobs. His statements lead me to wonder whether he would support raising the minimum wage to $100 or $1,000; why not really help working families and create many more jobs?