Eli Lehrer on Trends in Job Mobility

He writes,

Overall, employment patterns have shifted — in the direction of increased employment by big firms and a declining role for small businesses and the self-employed. Since 1993, the earliest year for which there is comparable data, the percentage of workers employed by small firms (one to four employees) has fallen slowly, but fairly consistently, from 5.6% to a bit under 5%. Meanwhile, the percentage of the workforce employed by firms with 1,000 or more workers has risen from 35.6% to 39.2%. Average tenure with the same employer has also risen in recent years, going from 4.9 years in 2004 to 5.5 years in 2014. The percentage of workers over 25 who have been with their current employer for more than a decade has also risen consistently, from 30.6% in 2004 to 33.3% in 2014. The percentage of people who are self-employed has steadily and consistently declined over the past several decades, falling from a high of about 7.3% in 1991 to 5.3% in 2015.

I wonder how this breaks down by industry. I would bet that the market share of small businesses has been declining in medical care, restaurants, and general retail. I assume that small farms have continued a downward trend.

Jason Furman’s Puzzle

He writes,

In the absence of economic rents, the return on corporate capital should generally follow the path of interest rates, which reflect the prevailing return to capital in the economy. But over the past three decades, the return to productive capital generally has risen, despite the large decline in yields on government bonds.

Pointer from Mark Thoma.

For a moment, think that there is just one interest rate. If “the” interest rate is low, then the rate of return on new capital ought to be low. Otherwise, firms would borrow at the low interest rate in order to purchase new capital.

One possibility is that the marginal return on new capital is low, but the returns on existing capital are high. That would be true in an economy where there are economic rents available, due to monopoly power and/or government favoritism. I gather that this is the story that Furman thinks is right.

I would note that there is more than one interest rate. It could be that there is a high interest rate charged to firms that are trying to invest in new capital at the margin. Microsoft can borrow at a low interest rate, but when it buys Linked-In that is not new capital investment.

Despite that possibility, my inclination is to believe that Furman is onto something. Read his whole essay.

Uber vs. DC Metro

According to Wikipedia,

Of those that work in Washington, D.C., 44.8% drive alone to work, 21.2% take Metro [the DC subway system], 14.4% carpool/slug, 8.8% use Metrobus, 4.5% walk to work, 2.7% travel by commuter rail, and 0.6% ride their bicycle to work.

Carpools are a pain to arrange and to maintain. But Uber offers a solution.

UberPool—the latest incarnation of Uber in New York City—works by finding users who are headed on similar routes and matching them up in cars that make multiple pickups and drop-offs. The service launched in New York last December and is also online in three other cities, but only started gaining traction here a few months ago, after Uber began advertising it heavily and promised UberPool riders steep fare cuts.

It seems to me that if Metro were to shut down completely, this sort of just-in-time carpooling could pick up the slack. I don’t know how the current system works, but I can imagine something like the following:

As a commuter, you wake up in the morning, and you decide that you will be ready to leave at, say, between 7:45 and 800 AM. You enter a price at which you would be indifferent between driving and collecting passengers or riding and paying the price. The system finds a price that balances supply and demand. If it’s above your price, then you drive and pick up other passengers, who pay you. If the market price is below your offer, then you ride and pay the driver who picks you up.

Unlike an old-fashioned carpool, every day you might come and go at different times, and every day you might have different people in the car with you.

This sort of a system would balance supply and demand. So if it were in place, then Metro could shut down and there would be no commuting disaster. Instead, some of those 44 percent who commute alone and some of those people who now take Metro would switch to these flexible carpools.

The system could reduce the number of cars on the road by offering a premium for picking up more than one passenger and a discount for being an extra passenger. The premium and the discount could depend on traffic conditions.

Contrast the flexibility and adaptability of such a system with Metro.

A Workable Phone Spam Filter?

A commenter writes,

I switched my landline to a VOIP service called ‘Callcentric’ years ago. It’s been great for me. Really cheap. Lets me block unwanted calls. Voice mails are sent to me as email attachments. Setting up the VOIP box initially require a little technical messing around, but that’s been the only drawback.

Several other commenters offered suggestions. I have some questions.

1. This seemed like the best solution to me. What are the worst drawbacks?

2. We have a phone on each floor of our house. Can we use one VOIP box with multiple phones?

3. Are there useful articles out there that describe the process of using VOIP for this purpose?

4. Are there useful articles out there about choosing a VOIP box?

Comments on Uber’s Value Proposition

A commenter writes,

It’s not that *SOFTWARE* suddenly let Uber and Lyft do things previously undreamt of so they took over the old fuddy-duddy cab business. It was a power play.

If one of the standard cab companies had wanted to operate like Uber, the city administration which licenses cabs would have shut them down immediately. Because “That isn’t how cab companies operate” and to hell with your fancy software and lineup of venture capitalists. But Uber never tried to operate as a cab company. It just merrily put up ads and flyers and signed up drivers and was happily ferrying passengers hither and yon while the established cab companies were trying to get somebody in city government to answer the damned phone and listen to a complaint. By the time the typical city bureaucracy reacts to the existence of Uber, it’s generally gotten itself established in most users’ minds as old and legitimate, and very few cities have the … anatomical features …. needed to clamp down. So Uber prevails.

We had a useful discussion of this in my high school econ class the other day. I made a point similar to the commenter’s, that Uber’s success consisted of changing taxi regulations to allow unlicensed cars and drivers to operate.

There are many other areas where one can imagine a profitable business model could be generated by getting rid of regulations that restrict would-be suppliers from entering the market. For example, suppose that you set up an Uber that connected prostitutes with customers, and it became accepted and popular, so that the authorities decided against shutting it down. Or an Uber for capable but unlicensed health care providers. Or an Uber for liquor. Or an Uber for medications, including medications not approved by the FDA.

One student looked up the market valuation of Uber and found it to be somewhere north of $50 billion. Where does that value come from? (My first thought, by the way, is investor irrationality.)

If what Uber has is a superior algorithm for dispatching cars, then taxi companies could simply hire software developers to build such an algorithm. I don’t think that is the answer. Of course, I remember that when Amazon said that it was going to branch out from books to selling everything, somebody remarked that it would have difficulty competing with Wal-mart, because it is cheaper to start with Wal-mart’s logistics system and build a web site than it is to start with Amazon’s web site and build a logistics system. It is worth thinking about how Amazon managed to overcome that apparent disadvantage, but that is a separate post.

A student pointed out that the remarkable accomplishment of Uber was convincing riders that it is safe to use. “Can you imagine what my mom would have said a few years ago if I told her that I was using my phone to find a stranger to pick me up in a car? And yet people are ok with that now.”

I think that is the real key to Uberizing an industry. Take a business where the public has come to fear unregulated service providers, and find a way to overcome that fear before the incumbents find a way to use the political system to stifle the business.

Why don’t competitors come in until Uber’s profit margin shrinks? The students think that Uber has powerful brand recognition. One way to think about this is to ask why competitors do not come in to challenge Google.

I think that the analogy between Google and Uber breaks down because consumers do not pay to use Google. To take customers from Google, you have to offer consumers something at the same price (free) that provides a better user experience. That’s tough.

To compete with Uber, what you have to offer consumers a similar user experience at a lower price. That strikes me as not so hard to do.

Can Google Sell You a Landline?

They say,

Landlines can be familiar, reliable and provide high-quality service, but the technology hasn’t always kept up. That’s why today, we’re introducing Fiber Phone as a new option to help you stay connected wherever you are.

Following the link, I see

Privacy controls like spam filtering, call screening and do-not-disturb make sure the right people can get in touch with you at the right time.

Spam filtering for phone calls. Verizon refuses to give that to me. The most they will do is filter 10 numbers. I get spam phone calls from more than 10 numbers in less than 48 hours.

Google does not have its fiber service in my neighborhood. But I would pay up for the spam filtering service if they could somehow provide it.

Why Are Taxis Inefficient?

James Hamilton writes,

A new study by Judd Cramer and Alan Krueger at Princeton found that only 40% of the miles that taxis drive in Los Angeles and Seattle are spent carrying a passenger someplace the person wants to go. By contrast, for UberX the numbers are 64% and 55% for the two cities, respectively. In terms of hours worked, taxi drivers in San Francisco spend only 38% of their work hours with a passenger on board. For UberX, that number is 55%.

Why should this be the case? One possibility that comes to me is the different economic model. My guess is that taxi companies make much of their money by renting to taxi drivers the vehicles and the taxi licenses. Maximizing the number of rides is not such an issue for them. But Uber gets a share of money on every ride, and that is where their revenue comes from, so they have no choice but to put a lot of effort into maximizing the number of rides.

Organizational Evolution

Rainer Kattel and Errki Karo write,

we can argue that the history of innovative public sector organizations starts from a Weber Type I organization that is dynamic, innovates often in policies and regulations, and resides outside of typical government operations, and then moves then to a Weber Type II organization that is professional, and centrally governed with substantial funding and policy means.

Pointer from Alberto Mingardi. The entire post is interesting.

I think that it is natural for organizations, particularly in business, to take more risks early in their life cycle. When you are just starting out, the upside of a gamble is more important than downside. When you are established, the reverse holds. Within an organization, a major purpose of bureaucratic rules and habits is to tamp down on risk taking. For the most part, this is a good thing.

Thoughts on Movie Pricing

Tyler Cowen quotes Ashok Rao,

Is the fact that I’m browsing on iTunes at all enough of an information signal to segregate the market?

I believe that this is the answer. If you go to a movie theater nowadays, that is as good as putting a sign on your forehead saying, “I have inelastic demand.” In a world where price discrimination explains everything, you can expect movie ticket pricing to err on the high side.

On the question of why there is not a price differential for higher quality movies, I have the following thoughts:

1. The best analysis of the economics of movies can be found in The Big Picture, by Edward J. Epstein. Pretty much everything I know about the topic I learned from reading that book.

2. One thing I took away from Epstein is that a lot the revenue that goes to the industry comes from tie-in sales (think Star Wars toys) and popcorn sales. The movie per se has more limited revenue potential.

3. Should better movies cost more because they are more expensive to make? Actually, the relationship between the amount spent making a movie and the quality of the movie is not terribly strong.

4. If you think that it should be the cost of distribution that drives the cost of movie tickets, then, well, the cost of showing a good movie is no higher than the cost of showing a bad movie.

5. From the theater’s point of view, it is perfectly rational not to charge a premium for good movies. The theater does better to increase popcorn sales by raising the quantity instead of trying to increase revenue per ticket by raising the price.

6. From the theater’s point of view, it is perfectly rational not to offer discount tickets for bad movies. Because the biggest cost of seeing a movie is opportunity cost, cutting the price is not going to induce many people to watch a movie they don’t want to see. Would you waste the time to go to a theater and watch a movie just because it was half price?