10 Tips to Make Your Classes More Engaging for Students
As if this wasn’t hard enough, it can be very difficult to keep students’ attention during class time. We live in a world of constant distraction, and often it’s difficult for students to engage in classroom material – especially difficult material – for an entire classroom session. The very best teachers know that engaged students learn well, and aim to make their classes not just informative, but also interesting and engaging. This is no easy feat; how can instructors make their economics classes more engaging? INOMICS has collected some tips and tricks, some of which were inspired through our time in economics classrooms. Read on for our top 10 tips on how to better engage your students to help them stay focused and learn. 1. Ask questions and seek your student's opinions One of the best ways to increase student engagement is to directly solicit their thoughts on the material at hand. Giving your students the expectation that you might call on them will inevitably cause them to handle the materials more critically, and pay more attention. It’s an excellent way of focusing students’ minds and instilling in them a healthy scepticism that’s essential to all good study. Be wary, though, some students can be shy when it comes to contributing to class discussions. To counter this, try and create an atmosphere in which questioning is encouraged and students feel comfortable offering an opinion, even if they're unsure. If a student answers a question incorrectly, but elements of their answer are correct, be sure to acknowledge the good parts of their answer before calling on the next student. This will help all of your students recognize that participation won’t punish them. Another tip - your more confident students are likely to be constantly participating while your more quiet students won’t get the chance to talk. To balance this out, ask for hands raised and call first on those students who don’t participate as much; consider “cold calling” students on occasion (but make sure this expectation is set beforehand); and do your best to respond encouragingly when the quieter students do choose to participate. Image credit: pressfoto on Freepik.de. 2. Assess the level of knowledge in the room and tailor your teaching accordingly Most classes that you’ll teach probably come with certain requirements about course content, including necessary prerequisites that students must pass first. Even so, your students will quickly grow bored and disengaged if your lecture material is either too basic or too advanced for them. Mitigate this by ascertaining the class’ general level of ability, and adjusting the complexity of your teaching accordingly. For instance, this could be done by getting your students to do a short introductory quiz before your first class. This type of differentiation (or differentiated instruction) can help students stay engaged in various ways. For example, advanced students will likely appreciate additional content (like proofs) that may not be core exam material. These types of students will typically ask questions proactively during the normal lecture to ask “why”, as they enjoy knowing the inner workings of the course’s content. These students might also appreciate assignments that include one or two very difficult questions that might be too hard for an exam, but great learning material for a more relaxed setting. Meanwhile, students who might not be comfortable with prerequisite material would greatly benefit from quick refreshers. This can help them remember older material before learning new concepts that build on that older material. They might also appreciate a slower pace of lecturing that allows them time to take sufficient notes. To this end, consider providing printable notes (with a few blank spaces to fill in) that students can bring to lecture. When students are merely copying down everything they hear, they might not have mental space to truly engage critically with the material. Pre-written notes or copies of your slides can make students feel more free to question, comment, and think about the material you're teaching, without missing important notes. 3. Get students to present work themselves It's said that one of the best ways to understand something is to teach it, and you can use this to help your students learn. Including student presentations will work better for classes that have material that can be dissected and spark discussion, as opposed to classes that teach irrefutable truths. For example, a course about economic history or behavioral economics – where economic theories are still being tested and debated – will probably have more opportunities for good presentations than an advanced econometrics course, where quantitative truths are more or less irrefutable. If time allows, consider asking each student to prepare a short presentation on each topic you plan to teach. You can use this as an introduction to your classes throughout the semester. For example, a course that discusses macroeconomic models or schools of thought (i.e., neoclassical vs. Keynesian theories) can feature a short student presentation about each model. This can give a high-level overview for the whole class, before you dive into the details. 4. Use multimedia like video or audio clips Dropping a short video, image or audio clip into your presentations can help freshen the heavily text-based format of most lectures, and will help those students who are more visual or auditory-based learners. Video clips of interviews with prominent economists, about relevant historical events, or the like can be particularly effective. Humorous but relevant videos or images can also be highly effective. For example, consider the below xkcd comic, shared during an intermediate economic statistics course: Image credit: xkcd. This comic is effective and engaging for a few reasons. First, for advanced students who already understand the basic differences between Bayesian and frequentist statistics (i.e., the fact that Bayesian statisticians use a prior distribution), this comic is pretty funny. It points out the absurdity of blindly trusting a frequentist approach all the time. Second, for students who don’t get the comic, explaining the joke helps them understand the main difference between Bayesian and frequentist statisticians, at which point the comic becomes funny to them as well. Wanting to understand the joke also gives students motivation to think critically and engage with the learning process, so they can join in the fun. Finally, the joke is actually very relevant to the class material. In this case, in order to understand the joke, the student must understand an important fact about Bayesian statistics and how it’s different than the frequentist methods. Breaking up the monotony of a lecture with something humorous or interesting, but also informative and relevant, is a great way to keep students engaged. 5. Encourage group discussion Consider breaking up your lectures by having a segment in which the class splits into small groups of 3-6 and discusses a topic or specific question amongst themselves. Good examples can include coming up with critiques of a specific economic model, attempting to derive a specific result from a model or a proof, listing examples of relevant economic policies, etc. After 10 or so minutes of discussion each group should then report back the most interesting points their conversation brought up, hopefully then facilitating further class discussion. This also helps engage students who might be too shy to engage proactively with the entire class, as point number 1 discusses. Image credit: cookie_studio on Freepik.de. 6. Change up the format of your classes As countless studies have proven, it's difficult for any of us to concentrate for longer than an hour (many actually suggest the limit is closer to 45 minutes), so try breaking your classes into manageable chunks. For example, if you have an hour to teach, you could give an introduction to the topic for 15 minutes, then give students 10 minutes to re-read the class material, follow this with a 20 minute discussion in small groups, and finally finish off with a 15 minute class discussion at the end. Changing format frequently will help to keep students engaged. It might even benefit you to completely change the class format from one week to another. Consider which types of exercises or discussions lend themselves to the different topics in your course – group discussions might make a lot of sense for some topics, but perhaps short presentations or a pop quiz work better for others. 7. Set up a debate In any field, there will be theories, models, or concepts which are contentious. Try splitting your class into small groups and asking them to present each side of an issue in a debate. In economics, this can include topics like the value of the different economic schools of thought, pros and cons of the minimum wage (or other economic policy proposals), whether technological progress is good or bad for the labor market, etc. Even if students don't agree with the side that they've been asked to represent, this is a great way for them to practice argumentation and critical thinking skills, as well as learning the material at hand. And it can help to engage the class, breaking up the rhythm of typical lectures and notes. 8. Allow breaks or changes of setting in longer classes It's a rare student who is capable of concentrating for the full length of a three hour lecture. Be realistic about the needs of your students (and of yourself as a teacher!) and allow short 5-10 minute breaks every hour or so, so people can stretch their legs, use the bathroom, and get a (possibly much needed) cup of coffee. 9. Work on your presentation skills Many of the tips for giving a great presentation – having an engaging voice and attitude, knowing your material inside and out, engaging your audience with a bit of humor, asking questions, etc. – apply to teaching in the classroom too. Great instructors have mastered the art of giving a great presentation, and students absolutely notice which instructors are good at this type of public speaking versus those who are not. 10. Make use of technology Don’t forget all that you learned during the pandemic! Continue to make use of the terrific technological tools that help make your teaching more engaging. For instance, your institution may have an electronic content management system like Moodle or Blackboard where you can share materials and set up discussions for your class. Instant polls have become quite common in recent years, using apps like Socrative, Poll Everywhere, or Kahoot!. Using games to teach economics is also becoming quite popular, and can go a long way to helping your students stay focused. It pays to try and stay abreast of new ways technology can be brought into the classroom to liven things up. Header image credit: Pixabay.
Teaching is an honorable, but difficult, job to do. Economics instructors working in higher education must rapidly and thoroughly communicate complex concepts and theories within tight semester time frames, effectively enough that most students will learn the concepts and pass the course.
AI supports the case to introduce a Universal Basic Income (UBI)
This economic growth is seen as a good thing by economists, because it theoretically empowers us to satisfy our needs with less effort, and frees us up to enjoy our lives more. As our economies have become increasingly efficient over the past several decades, some have increasingly called for shorter work weeks to take advantage of this increased productivity. The advent of new and useful AI tools only strengthens this call. The link between economic growth and leisure time Typically, two main factors contribute to economic growth; increasing population and improving technology. Both of these factors are represented by inputs in the standard Cobb-Douglas model of the economy (population is represented by labor, L, which will tend to increase as the population grows). But it’s the latter factor, technological progress, that ties AI to the idea of a universal basic income (UBI). Technological progress – represented by the multiplicative factor A in basic Cobb-Douglas models – allows society to produce more with the exact same levels of employment and capital stock. John Maynard Keynes, one of the great historical figures in economics, predicted that by 2030 people would work for only 15 hours a week. He believed this because he expected that the increase in economic productivity, largely in part due to improving technology, would allow people to produce more in less time. This would then allow for workers to have much more leisure time, which would increase overall welfare and happiness. Thinkers and philosophers in history have often viewed leisure time as the ultimate goal of increasing productivity. For example, Aristotle, in his work titled Nicomachean Ethics, once said that “the end of labor is to gain leisure” (though he also advised that we use our leisure time wisely, stating “...the objective of leisure can and should be to sustain other aspects of our lives which make us uniquely human: our souls, our minds, our personal and civic relationships”). This view makes sense. What is the point of toil if not to provide for ourselves? And if we are sufficiently provided for, why should we continue to toil needlessly? As technology advances to the point where we can produce enough goods and services for everyone in record time, it seems only fair that everyone should have their basic needs met. This would then allow people the freedom to pursue their own passions and interests – seemingly a great human achievement. UBI and AI This sort of vision of a human-centric utopia begins to point to the need for a systematic way to ensure everyone is provided for fairly. One idea that may accomplish this is, of course, implementing a universal basic income (or UBI). The development of (potentially) transformative AI tools lends much weight to the theoretical arguments around implementing a UBI – and thus increases the need to seriously discuss the merits and drawbacks of such a system. The basic idea of a UBI is that the government would pay everyone a basic stipend to live on. Then, generally, people would be free to continue pursuing business enterprises or working careers as they saw fit to earn extra money or work on a passion project. Notably, this situation differs from communism in that public ownership of everything is not implied or even desirable in such a situation. Certainly, a society with a UBI could be considered some flavor of socialist, but it’s not necessarily anti-capitalist. UBI itself would not change the normal functioning of capitalistic markets. Therefore, capitalist structures and the rewards it gives to innovators and efficient business leaders could remain, yet the UBI would grant individuals a greater degree of personal freedom. How AI can lessen some arguments against a UBI One common argument against a UBI is the idea that having a UBI will make people not want to work. If everyone made enough money to live comfortably without doing anything, lots of people would possibly choose to stop contributing to society. Further, if a UBI is substantial enough, it might crowd out certain lower-income professions entirely. If people could make as much money as a fast food worker, librarian, or computer repair technician (for example) without doing any work, it’s very likely that nobody would choose to work in those roles. This could either inflate the pay for these roles to unsustainable levels (as demand outstripped the supply of labor), or it could cause these services to disappear entirely. The solution to this problem is not a lower UBI. If the payments weren’t substantial enough to provide for the basic needs of the recipients, they would not achieve the intended goal of a UBI, which is to do just that. Proponents of a UBI wouldn’t be satisfied with only a small income that left people still unable to provide for themselves. However, advanced AI might provide a solution to this potential labor supply problem, at least in some industries. If AI advances enough to allow machines to replace humans in these roles, suddenly the idea of a UBI seems quite desirable. Humans wouldn’t have to work these types of jobs at all, but society could still benefit from them. In fact, AI is already starting to transform some of these roles. The first level of customer or IT support in many industries often takes the form of an AI chatbot to diagnose the issue, provide an appropriate answer, and escalate to a human professional if help is still needed. What’s more, a recent Wall Street Journal article revealed that several fast food chains are already replacing humans with AI that will take your order in the drive-thru. Wendy’s announced in mid-2023 that they would be partnering with Google Cloud to do the same. Meanwhile, news about AI replacing librarians has yet to come – but certainly many functions of a librarian could be automated by generative AI, including searching for books, directing people to specific amenities, reserving rooms, checking out books, and more. In the perhaps not-so-distant future, then, people who would formerly have worked in these roles could instead pursue their own passions – like producing music, writing, furthering their education, or simply spending time with their families. It’s not hard to imagine society becoming more fulfilled, happy, and even more healthy in this case. Indeed, one common argument in favor of a UBI is that it would free up citizens to pursue their passions and enjoy life rather than being slaves to their desk jobs. Since the COVID-19 pandemic, trends like quiet quitting have shown that modern workers are attempting to rebalance the scales in their favor, and would like to enjoy the benefits of economic growth a bit more in their own personal lives. Advanced AI tools could help make this a reality without reducing economic output. How much productivity is enough? While our current slate of AI tools cannot do everything, and certainly haven’t displaced most workers, they have the potential to massively increase human productivity. Especially as these tools become more sophisticated, specialized, and powerful (perhaps culminating in the development of more advanced and human-like AI), larger segments of the economy may become dominated by them – potentially costing people jobs as well as creating new ones via the process of creative destruction. And many jobs, even if they’re not fully automated, will experience a potentially huge increase in efficiency as specialized AI tools are developed for their fields. Which begs the question: at what point has society achieved enough productivity? The idea that profits and output will grow forever, infinitely, is ludicrous when considered for any length of time. Yet capitalism has no built-in ceiling, or “off” switch, and continues to prioritize growth of the bottom line. Therefore, a purely capitalist society where growth and returns are valued above all else may not be the best system forever. Indeed, it may have already worn out its welcome. Many would argue that rising wealth inequality and global issues like climate change are fairly direct results of the unsustainable pursuit of profit margins that capitalism has championed. What, then, should take its place? One possible answer could be a society with a somewhat capitalist structure, where sustainable provision is provided by a UBI. One where people are more free to develop their careers, forge new businesses as entrepreneurs, and make extra money how they see fit, but where society no longer deifies the paradigm of infinite, quarter-over-quarter growth. In such a system, the basic gears of the economy would continue to turn as AI-assisted or even entirely automated occupations produce as much as we do now with far fewer labor hours. This would free up people to live more fulfilling lives. This includes people whose fulfillment comes from work: a UBI would give people the flexibility to pursue job training and advanced education for the jobs they want to try, or give them a great safety net as they try to develop their entrepreneurial ideas. Advanced AI capabilities lend a lot of weight and potential realism to these ideals, and the straightforward idea that everyone should have a basic income to take care of these needs. If it becomes possible in the coming decades, why shouldn’t we give it a shot? AI does not automatically solve the challenges of fairly distributing economic gains As aforementioned, AI signifies yet another massive leap forward in potential productivity since Keynes made his original “15-hour work week by 2030” prediction in 1930. In that regard, how have we been doing over the past century? A graph put together by the site Our World in Data – using data from the World Bank and Maddison (2017) – shows the incredible exponential increase in world GDP, especially since 1900. Yet, working hours in developed countries have remained at roughly 40 hours per week for decades. In several developed nations, work weeks of more than 40 hours per week have even become more common than they were in the 1990s, according to the London School of Economics’ blog. Clearly, the massive increases in productivity haven’t exactly freed up the average working person as Keynes predicted. This is because increased growth doesn’t automatically distribute itself fairly. As productivity has increased over the past century, there have been modest gains in leisure time. But, wealth inequality has risen dramatically. Increased productivity will change the economy, and a UBI is just one possible way that productivity can trickle throughout the economy. But there are other ways productivity could contribute: wealth inequality is the natural result if nothing is done to ensure that increased prosperity is distributed throughout society. The reason for this is that the existing structures of power in the capitalist system are bent towards infinite growth. Those at the top are benefitted when productivity increases, and have no proper incentives to share the wealth. Instead, like metaphorical dragons, they’re able to hoard their wealth to ludicrous levels. Again, there is no productivity target or goal in our current economic system; if we become more productive, the economic engine we’ve created is designed to continue shooting for the moon, not help us all live happier lives. It’s up to us to reassess our goals, take stock of the world around us, and pivot. If AI creates enough production to keep society running without most of us needing to work so much, or even at all, then there’s a much stronger case to be made that people should be given a basic living stipend and allowed to pursue their own lives with a greater degree of freedom. Louis O. Kelso once said in his co-authored book Two-Factor Theory: the Economics of Reality, “The sooner the world solves its economic problems, the sooner its inhabitants can afford leisure and peace and get on with the non-material things that are inherently important: the work of mind and spirit that is gloriously and uniquely human, the work that no machine can ever do”. Perhaps it’s nearly time to let those machines do the material work for us; after all, we’ve got to live our lives to the fullest. Header image credit: Pixabay.
One of the key features of the global economy is that it tends to grow over time. In fact, that growth has become something of an expectation in the modern capitalist system, where the success of corporations is often judged by their growth, even over relatively short time horizons.
Public Economics & Economic Policy (JEL H)
Economic Development, Innovation and Growth (JEL O)
Which Concentration Should You Choose For Your Master's Degree in Economics?
A degree concentration in economics is an area of specialist study within the field of economics which you give particular attention to. Specializing in a particular sub-field can boost your already high employability as an economist even further, and pursuing a concentration is a first step in that direction. To help you decide whether a concentration is right for you – and which one – this article will provide a list of common economics degree concentrations and a brief overview of each. Hopefully, you find one that inspires you! Bear in mind that in certain economics departments, some concentrations may have specific entrance requirements above and beyond the entrance requirements for the economics Master's. Be sure to check the websites of the universities that you’re applying to for more details. Applied Economics Applied Economics, unlike other concentrations on this list, is not truly its own sub-field. Rather, applied economics concentrations teach students to develop and interpret econometric models that can be used to make decisions about specific subject areas – like national and foreign policy, energy strategy, environmental or health economics, etc. As opposed to a more theoretical approach, applied economics is all about the practical application of economic concepts in the real world. Certain institutions might have more of a focus on some of these areas, but not others, depending on their strengths. If you’re very interested in health economics (for example), be sure to search for institutions that offer coursework in health economics specifically. An “Applied Economics” concentration typically requires a solid knowledge of mathematics and the ability to reason about economics, and will appeal to those who want to make concretely useful policy suggestions which are based on economic knowledge. This concentration is a great idea for students who wish to become an industry economist. However, this might not be the best approach for students who are more interested in research, as the concentration typically focuses more on applied methods and real-world applications than theory, as its name suggests. Econometrics / Quantitative Methods An Econometrics or Quantitative Methods concentration focuses heavily on the mathematical and statistical side of economics. While every economist is going to need some familiarity with econometrics in order to do their jobs, this concentration dives deep. Students are highly encouraged to come with at least some background in statistics or calculus in order to succeed in this concentration. Students who complete an econometrics concentration may develop less specific “real world” subject matter expertise than others, so this may not be a great choice for students who have a clearly defined research interest (unless that interest is in econometrics, of course!). However, this concentration provides an extremely solid foundation for future research or PhD studies, since often the hardest part about conducting economic research is doing an appropriate quantitative analysis. Econometricians who do not specialize in a particular real-world application nevertheless lay the groundwork for other economists’ research. They are instrumental to the development of economics as a serious research discipline – just look to the accomplishments of Dr. Wooldridge. And, it’s relatively easier to pivot from a quantitative methods focus into any other economic subfield than to do the same pivot from other concentrations. That’s because econometric methods are the foundation of solid, repeatable, trustworthy economic research, and form the backbone of knowledge generation for economists. Economic History For students who want to combine the study of history with economics, good news! Economic history is an established subfield that is often offered as a concentration. Study in economic history involves using modern economic methods to examine historical situations and institutions. While this deepens our understanding of historical events, another main purpose of this field is to learn about how economic relationships work in the real world and test economic theory, so that contemporary economists can apply those findings to modern situations. This is important and useful work, because it’s usually difficult to test economic theories directly. Economists often cannot create experiments as easily as other scientists, due to moral and logistical concerns. Thus, using historical events as sorts of case studies allows economists to test economic theory in a real-world situation. There are plenty of academic opportunities for economic historians, though students interested in an industry economist job might be better served focusing on a concentration like applied economics instead. Health Economics Health Economics is a concentration that looks at how the principles of economics are applied to health in our society, including but certainly not limited to the functioning of the healthcare industry. Students in this concentration willI examine topics such as the tradeoffs between different types of healthcare systems, the effects of health problems or healthcare availability on economic outcomes, the behavioral modeling of healthcare use, and more. This concentration is particularly well-suited to students interested in healthcare, of course. But it’s also a useful concentration to consider for students interested in developmental economics and gender economics. Research in this field is alive and well, and there are plenty of opportunities for economists with this concentration to work in either academia or industry. International Economics For those economics students with an interest in international relations, foreign policy, trade and foreign direct investment, and/or globalization, the concentration of International Economics should be considered. Although every institution has its own unique take on teaching these subjects, this concentration commonly includes subjects such as international trade, foreign investment, and international political economy. Check the specific course offerings of the institution you’re considering to see which elements of international economics are emphasized. This concentration should be strongly considered by any students who wish to work in a role that involves government policy or policy analysis, international trade regulation, market integration across regions, or possibly even international development. Labor Economics Labor Economics is a branch that focuses on the functioning of the labor market. This is perhaps one of the oldest and most traditional fields of study for economists, though that doesn’t mean it’s outdated; study of systems of labor is alive and well. This sub-field is all about the study of how employers and employees react to changes in the work environment – including wages, prices, regulations, etc. This typically includes study on subjects such as minimum wages, labor regulations and their economic consequences, unionization, unemployment, worker migrations, and possibly even unpaid work like household labor (after all, one valid response to lowered wages is to stay home instead!). Labor economists can find themselves working for a wide variety of employers, including universities, think tanks, consulting firms, governments, and more. This is a very flexible sub-field that can even be combined with others – for example, the more specialized sub-field of international labor economics studies the movements of workers between countries. Finance / Financial Management Those who want to work in financial regulation, in public finance roles or in the finance industry, – for example in a bank or an investment group – should consider taking a concentration in finance or in financial management. The jobs which this can lead to are typically very well compensated, and a finance specialization offers much real-world applicability. Many economics departments include monetary economics coursework options within their financial economics concentrations. Some offer monetary economics concentrations that typically deviate from the core financial economics coursework somewhat, but still share many classes with the standard financial economics degree. So ,students who are interested in central banking ought to look for financial economics concentrations that include monetary economics coursework. It’s worth noting that many MBA programs offer finance concentrations as well. The advantage you’ll have coming from an economics background is that you’ll understand markets and financial decisions from an economic standpoint, and you’ll likely have a better quantitative foundation. Your analysis would arguably be more in-depth compared to the average MBA. Meanwhile, MBAs will give you a greater understanding about the business world and related functions, like corporate finance and marketing; these degrees are typically broader, while an economics-based finance degree is typically deeper. For economics students who love finances, financial markets, and how money works in the economy, look no further than a concentration in financial economics. There are many industry opportunities for economists with such training. But, there are also academic research opportunities for the more research-inclined – research on emerging areas of finance and new instruments being created are always in demand. Developmental Economics / International Development Students who wish to follow in the footsteps of economists like Dr. Esther Duflo, and use their knowledge to promote social good, may be interested in a concentration in Developmental Economics. Also sometimes referred to as international development, this concentration studies poverty and its causes, and how development interventions can improve quality of life for people around the world. It includes topics like policy planning and advocacy, the study of foreign aid interventions, and health, education, and finance-related programs that can assist the world’s poor. Other topics that might be included under this concentration include more general studies of how economic growth occurs and how policy contributes to growth. Economics students who want to work in an NGO or at a major aid organization like the IMF or the World Bank should strongly consider this type of concentration. Research opportunities in this field abound, as well; randomized controlled trials have become popularized by the 2019 Nobel Prize winners in economics, and are extensively used in this sub-field to research how economic theory works out in low-income and developing economy settings. Environmental Economics Environmental economics has become an increasingly popular topic as the impacts of global warming have been felt over the years. This sub-field studies the effects of climate and climate change on our societies and the economic systems that run in them. It also deals with sustainability concerns; expect to study topics like the appropriate interventions that can be made to account for externalities across global supply chains to reduce negative environmental impacts. Environmental economics is ripe for research, and industry positions are becoming more in demand. However, this field is much younger than the others on this list. This means that there are fewer established career paths in the field, which is exciting and challenging for aspiring environmental economists. Additionally, environmental economics programs are mostly more recent additions, so it might be necessary to double check if the university you’re interested in has one. If you’re looking to make your mark on a relatively newer field of economics, are interested in climate change, and care for sustainability, look no further than a concentration in environmental economics. Behavioral Economics This sub-field is the intersection between economics and psychology. It studies decision-making behavior and dares to ask the question: what if our assumptions about rational economic man are wrong? Behavioral economists often conduct experiments that are very similar to those used in psychology studies, though usually with distinctly economics themes (i.e., people’s lying or truth-telling behavior when anonymously sending or receiving money from others). Academic research in this field is quite vibrant, and insights from this sub-field routinely improve the economic models used by micro- and even macroeconomists. As such, expect a behavioral economics concentration to include a large amount of psychology. These courses also typically include deep study of foundational microeconomics concepts, like preference relations. While behavioral insights are increasingly changing macroeconomic models, this is a distinctly microeconomics sub-field. Academic research in this field is vibrant, but there are still many industry economist opportunities for behavioral economists. Non-academic career options for a behavioral economist include consulting, market research and advertising, and even jobs in behavioral finance. Urban Economics Do you love city planning, resource management, policy analysis, and economics? Urban economics is a sub-field that studies our societies from the perspective of cities, towns and smaller communities. Urban economists focus on studies of crime, public education, municipal resource management and distribution, regulation at the city level, housing, public transportation, agglomeration economies, and more. Because urban economists specialize in cities, towns and similar societal structures, they often touch many different areas of economics, though these are usually microeconomics focused. So, students who are interested in a broad swath of economics topics might find an interesting home in this sub-field. For example, an urban economist might need finance experience to help analyze municipal budgets or monetary policies. They might benefit from some environmental economics knowledge to study urban sustainability. Or, they might need experience with developmental economics or health economics to help analyze the availability of and improvements for public services. Research and academic positions (like an economics professor position) are of course available for urban economists. Non-academic positions most often include positions in local government or policy analysis roles. <11an>limit:5;categories:Courses|Programs;disciplines:Econometrics, Statistics and Quantitative Methods (JEL C)|Economic History (JEL N)| Agricultural and Environmental Economics (JEL Q)| Urban, Rural and Transportation Economics (JEL R)</11an> Conclusions These concentrations are some of those most commonly offered, though of course this is not an exhaustive list. Part of the appeal of higher education is the opportunity to learn from leading economists and researchers about their interests and field of expertise, and these intellectuals routinely help to shape and design their institutions’ course catalog. Use these descriptions as a guideline, but you should still do your own research into the right economics program for you. Happy studying! Header Image Credit: by Arek Socha from Pixabay (free for use under the Pixabay content license)
If you're planning to study economics at a Master's level, then you may have the opportunity to pursue a concentration, sometimes also referred to as a major. While rarer, some PhD programs may also offer concentrations, though many are already specialized degrees (or require you to have your own research agenda).
Urban, Rural and Transportation Economics (JEL R)
Macroeconomics and Monetary Economics (JEL E)
Econometrics, Statistics and Quantitative Methods (JEL C)
Agricultural and Environmental Economics (JEL Q)
Studying in Germany: How to apply for a student visa
If you’re a citizen of the EU, Iceland, Switzerland, Liechtenstein, or Norway, good news! You won’t need any type of visa to study in the country. Prost, indeed! Citizens of some other countries don’t need a student visa to enter the country, but will need one to complete their studies in Germany. These include citizens of the United States, Great Britain, New Zealand, Australia, Canada, Israel, Japan, and South Korea. If you aren’t from the Schengen area, applying for Germany’s student visa might seem to be a daunting process, but we’re here to help make sense of it. The process is relatively straightforward, although it has many pieces. Read on to learn about how to apply for the student visa in Germany and our tips for making the application process easier for you. Note that this information is accurate as of the publish date above. Some of these requirements could be changed by the German authorities over time, however. Be sure to double check with the references provided at the end of this article. Note that this article does not cover work visa requirements for Germany. But fear not – we have another article for just that! Applying for a student visa The exact requirements for a student visa are subject to vary depending on the country you’re applying from. Check with your local German embassy or consulate for exact details. You can search for the nearest embassy or consulate that will process visa applications on this page at the German Federal Foreign Office’s website. In most cases, the following guidelines apply. You will need to make an in-person appointment at an embassy that is able to process visa applications and provide several documents for them to take and/or copy. The following documents are typically necessary: A completed visa application Your valid passport Proof that you have German health insurance Proof that you have sufficient funding Proof of acceptance into a German university Proof that you have sufficient language skills Only if applying for a prospective student visa: a recognised higher education entrance qualification A fee (typically; check with your embassy or consulate) We’ll walk through each of these documents below. Completed student visa application This document should be available to download from the website of the embassy you’ll submit the application to. It may require some additional documents not listed in this article – such as a certified copy of your birth certificate – but these documents will often be required when processing other documents on this list, such as your passport. Be sure to download and read the application form that your nearest German embassy provides for more specifics. Valid passport Naturally, you must have a valid passport in order to apply for a student visa as a foreigner. Make sure that you apply for your passport as early as possible. Some countries – or certain seasons – can take a long time to process passports, especially new ones. If you already have a passport, it’s also wise to check the expiration date on it to ensure that your passport will not expire during your intended period of study. You should get it renewed if there’s a chance it could expire during your normal course of study. If you find yourself in Germany and worrying about your passport expiring, do note that some embassies – such as the U.S. embassy in Frankfurt – will allow you to renew your passport while you are in Germany. However, this often requires you to fulfill additional criteria. It’s easiest to renew your passport in your home country, but if you’re facing an impending emergency, check with your country’s embassy in Germany to see if they can help. Proof of health insurance In Germany, students are required to have health insurance. This means that you will most likely have to apply for and be approved for health insurance in Germany before you arrive. Certain international students can continue to use their public health insurance from their home country while in Germany, and do not need to take out German health insurance. This includes students from other EU countries, and additionally Switzerland, Iceland, Macedonia, Norway, Liechtenstein, Tunisia, Israel, Morocco, Bosnia and Herzegovina, Montenegro, and Serbia. Be sure to check with your current health insurance provider to confirm that they will continue to cover you in Germany. Public health insurance is available to university students under the age of 30 who have not completed more than 14 semesters of school in Germany; costs are usually around €110 per month. If you don’t qualify for public insurance, you’ll have to take out private insurance for the duration of your studies. Fortunately, applying for German student health insurance is not overly difficult, and several providers maintain English translations on their websites. Two notable and popular options for foreigner’s student health insurance include Techniker Krankenkasse (or just TK) and Barmer. Both feature English translations of their websites. One complication that may arise: some insurance providers might ask for proof of your German residence (though as of this writing, it’s possible to register for insurance with both Barmer and TK without this). However, this is an obstacle that can be overcome even if you don’t have an address or proof of one before you arrive in Germany. It’s usually possible to enroll in a health insurance plan using your proof of acceptance to a German university instead. It may also be possible to find a place to live online, and receive appropriate documentation from your landlord fulfilling this requirement before you move to the country. But, if you take this route, you ought to be careful and use reputable sources when pursuing this option. INOMICS has previously written about how you can find lodging in a foreign country when planning to study abroad; these resources can help. Additionally, your university might provide student housing options, particularly if you’re pursuing a Bachelor’s degree. You can also look for student housing that isn’t necessarily attached to a university, for instance through the DAAD’s website (the German academic foreign exchange service). Check with the specific health insurance provider you plan to use for options if they need proof of your German residence. If you can’t get out of that requirement and decide not to use a provider that doesn’t need that proof, these options should work for you. Even if not, there are usually expat websites from your country that can help you. Proof of sufficient funds You’ll need to provide proof that you have funding to support yourself through your studies in Germany before you can be issued a student visa. This requirement can be fulfilled in a few ways. If you are not funding your own studies, options for proving you have sufficient funds include providing proof of your scholarship, grant, or other financial aid, or submitting documents that prove your parents or legal guardians can pay for your living expenses. Again, the exact documents required to prove these options may vary, but your nearest embassy or consulate should provide a list of specifics. If you are planning to pay for your own living expenses, you should open a blocked bank account (Sperrkonto) and store the required amount of savings before you apply. The amount required is intended to ensure you have at least a year’s worth of savings to cover your living expenses in Germany. As of 2023, the amount required is €11,208, though this is subject to increase every few years depending on inflation. The blocked account, once opened, is not easily accessed. It does not function like a savings account. Instead, the German government issues you payments from your blocked account savings as if it were a stipend. All of the money continues to belong to you during this time, and you will receive all of your money back, but you won’t be able to withdraw from the account as you please. As a side note: keep in mind that students are allowed to work, but not for more than 20 hours per week, on a German student visa. So, it’s possible to earn more money to support yourself – even after the blocked account is depleted – but you will have to plan ahead. Proof of acceptance into a German university This document is technically not required to obtain a student visa. If you’re planning to study in Germany but have not yet been accepted into a university, you can still obtain a prospective student visa instead. You can find more information about this below. But, if you have been accepted into a German university already – great! Providing proof of your acceptance will help the student visa process go smoothly. This will usually take the form of an acceptance letter sent by the university where you plan to study. The next requirement applies to you if you do not have a formal acceptance to a German university. If you do have one, you can safely ignore them. Proof of sufficient academic qualifications If you haven’t been accepted to a German university yet, you’ll need to show proof that you have the minimum academic requirements to be admitted to one. This means that you have completed the necessary prerequisite levels of education. For example, if you’re applying for a Master’s degree, you can show proof that you completed a Bachelor’s degree and are therefore eligible for admittance to a Master’s program. Proof of sufficient language skills If you haven’t been accepted to a German university – or if you have, but the language is not your native one – you’ll need to submit proof that you’re proficient in the language of instruction. This most often takes the form of a language test, but your embassy or consulate might accept alternative documents as well. A commonly taken German language test is the TestDAF, while a common English language test is the TOEFL. On this note – while many German degree programs are offered with German as the language of instruction, several major universities – like the University of Cologne and Humboldt University in Berlin – offer certain degree programs in English. It is possible to study in Germany without a high level of German language proficiency, though of course a basic level of proficiency will be instrumental in navigating daily life in Germany. Plus, knowing (or learning) some German will make your time there more fun! Prospective student visas Have you not yet been accepted into a university, but are moving to Germany anyway? Or are you applying for a German preparatory language course before you apply to a university? If yes, then the prospective student visa (sometimes called a student applicant visa) is the type you should be applying for. It has slightly different requirements than the full student visa, and is only valid for three months (though it can be extended for up to six months), whereas the student visa is valid for up to four years. You will still need to apply for a residence permit and student visa if you’re accepted into a full university program at some point. So, it’s worth it to start preparing with the other documents mentioned in this article. Entering Germany without a visa Citizens of certain countries are allowed to enter Germany without having a visa issued. These include but are not limited to Australia, New Zealand, the United States, Great Britain, Israel, Japan, and South Korea. The full list of visa entry requirements by country can be found at the Federal Foreign Office’s website. Despite this, it’s still useful to be prepared and apply for your visa before you leave for Germany. Entering the country without a visa does not mean you’re qualified to live there long-term. You’ll still need to apply for a student visa and a residence permit if you plan to stay for longer than 3 months. If you fail to acquire your visa (or fail to have a visa appointment scheduled) before that time expires, you’ll be forced to return home. If the student visa process seems complicated, just remember that many people have done this before you, and it is very possible to do! This article should help you get started. Although there are many things to think about, and many steps, gathering the required documents and applying is a straightforward process. It just takes some planning. So be encouraged, and remember that it is possible – and worth the effort. Many foreigners have successfully studied in Germany, and valued the experience highly. Viel Erfolg! References Germany’s DAAD website: https://www.daad.de/en/study-and-research-in-germany/plan-your-studies/visas/ Germany’s Federal Foreign Office website: https://www.auswaertiges-amt.de/en/visa-service Header Image Credit: Nikolaus Bader from Pixabay (Free for use under the Pixabay Content License)
So you want to study abroad in Germany, the largest economy in Europe. It’s a great country filled with many high-quality, internationally competitive universities. Plus, lovers of pretzels and sausages will never find a better place to be. Of course, if you’re an international student, you’ll probably need to get a visa before you can go.
Working in Germany: How to apply for a work visa
But, now you might be wondering how to apply for a work visa in Germany if you hope to transition from student to economist, so you can pursue your career while remaining in Deutschland. We’re here to help you begin tackling the process. Read on for information about getting your work visa in Germany, and our tips for making the process go smoothly. But before we start, first note that residents of the European Union, the European Economic Area, and the European Free Trade Association do not need any visa to work in Germany. If you’re from one of these regions, simply find a job, start working, and enjoy life in the largest economy in Europe. First step: Job seeker’s visa Fortunately, Germany has made the process of finding a job in the country after you graduate an available and fairly straightforward option. After you graduate from a German university in the country, you’re eligible to apply for a job seeker’s visa. This grants you a minimum of six months (up to a maximum of 18 months) of stay in the country after you graduate, during which time you can look for a job. Recently graduated students aren’t the only people who qualify for a job seeker’s visa – any reasonably skilled professional has a chance at securing one. But, being a recent graduate of a German university increases the chances that your application will be successful – especially if you have proof of German language skills, too. The basic eligibility criteria to be awarded a job seeker’s visa are as follows: Hold a Bachelor or Master’s Degree. Have a minimum of 5 years’ experience in your field of interest or study (for those who haven’t graduated from a German university). Proof of health insurance; all residents of Germany are mandated to have health insurance. Foreigners should look into health insurance for job seekers, or health insurance for foreigners. Student insurance only lasts through your studies, so once you graduate, you’ll have to re-apply for insurance. Proof of sufficient funds; this means you can prove that you have enough savings or income to afford your living expenses. For job seekers, this takes the form of a blocked account (just as with students), letter of sponsorship from someone promising to pay for your expenses, or a bank statement showing sufficient funds. Language proficiency in either English or German. While only English language proficiency is enough to qualify for this type of visa, German proficiency is desired and will certainly help your chances. Documents needed to apply for this type of visa usually include the following list. But, please note that this list might not be exhaustive for every country. Check with your local Germany embassy to check what their requirements are. They will probably require: A completed German long-stay visa application form. Your valid passport that has at least six months before it expires. Three passport-style photos; these can be easily taken at a photo kiosk in Germany. If you’re not in Germany, many convenience stores and drugstores tend to offer these types of photos. Proof that you have a valid German address to stay in during your job-seeking period. Proof that you have health insurance (you’ll likely have to get foreign workers’ health insurance) in Germany. A cover letter explaining the purpose of your time in Germany, how you plan to find a job, and your backup plans if you don’t find one. Proof of academic qualification, which is typically proof of your previous diploma. If you aren’t a recent graduate or a current student, you’ll need to attach proof of work experience in the field you intend to work in. Students can also attach work experience to improve their chances of being granted a visa, too. Your curriculum vitae (CV). As stated above, proof of financial resources. This could be one of the following: a bank statement, a letter of sponsorship by another person, or a blocked bank account. Nationals of the EU, Australia, Canada, Japan, Israel, South Korea, New Zealand, Norway, Liechtenstein, Iceland, Switzerland, and the USA do not need to apply for a job seeker’s visa. They can enter the country without one (although they could choose to apply for a job seeker’s visa, too), but must obtain the appropriate residence visa to remain in Germany long-term. So, if you’re from one of these regions and already in Germany, you should instead apply for a temporary residence permit at the immigration authority. This office is officially called the Landesamt für Einwanderung, but is also known as the Ausländerbehörde. Nationals of the UK must acquire a job seeker’s visa as of this writing, though they can enter the country without one. Nationals of Turkey must obtain a job seeker’s visa before entering Germany as of this writing. How to apply for a job seeker’s visa To apply for the job seeker’s visa, you’ll need to visit your nearest German embassy or the Federal Foreign Office (Auswärtiges Amt) if you’re already inside Germany. To apply, book an appointment at the appropriate office, bring the required documents, and pay the fee. Then, you must wait for the visa to be processed, which can take up to 3 months according to the German Missions in the United States (although this may vary by country). Of course, be sure to check the list of required documents when you go; our list is representative, but does not cover possible deviations by country. Important information on applying for a permanent worker’s visa If you intend to work in Germany long-term, you’ll need a German “long stay” employment visa. If you find – or already found – a job with a German employer, they’ll sponsor this so that you can remain in the country. You should talk to your employer about the process if this is the case for you. You should also know that if you stay in Germany on an employment visa for at least five years, you’ll then qualify for a permanent residence permit (for more information on this permit, see the Federal Office for Migration and Refugees' website). Germany has three types of long stay work visas that will allow you to stay in the country and work long-term. These are the general employment visa, the special employment visa, and the self-employed visa. Requirements for each of these visas vary. As with the job seeker’s visa, please note: if you’re a citizen of the USA, Australia, Switzerland, South Korea, Israel, Japan, Canada, New Zealand, or an EU country, you can enter Germany without a visa and start the application process after you arrive in Germany. However, you’ll have a limited window to start the process (up to 90 days). It’s never a bad idea to begin the process earlier. How to apply for a German work visa (long stay) To apply for your employment visa in Germany, simply register for an appointment at your nearest German embassy (or, if you’re already in Germany, the Landesamt für Einwanderung or Ausländerbehörde), bring the necessary documents, and pay the fee. Then, you’ll have to wait for your visa to be processed. Remember to check the final, official list of documents with whatever office you intend to apply in; our list includes the usual requirements, but some offices might have varying requirements. Importantly, if you work as a teacher or other educator, doctor, nurse, engineer, or lawyer, or sometimes other positions*, you’ll also need to prove your vocational qualification showing that you are competently and sufficiently trained in addition to the normal documents. Hopefully, this article will help you get started on launching your career in Germany. Remember that many people have completed the process before you; don’t get discouraged if it takes some time. Best of luck! *Other positions include professions related to those listed, master craftspersons of certain fields, and others. You can search for your specific profession at the Bundesministerium für Bildung und Forschung’s website. Alternatively, you can search a list of regulated professions in all EU countries – including Germany – here. However, the best way to check if your specific role is regulated or not is to ask your local German embassy. Sources: https://www.germany.info/us-en/service/visa/employment-visa/922292 https://www.schengenvisainfo.com/germany/visa/employment-visa/ https://visaguide.world/europe/germany-visa/long-stay/job-seeker/ https://visaguide.world/europe/germany-visa/long-stay/employment/ https://visaguide.world/europe/germany-visa/long-stay/employment/ https://www.auswaertiges-amt.de/en/visa-service/buergerservice/faq/weiteres-box/230198 https://www.germany.info/blob/902660/13b92beb6cbf3257cc066e1f212ab853/employment-data.pdf https://www.anerkennung-in-deutschland.de/en/interest/finder/notice?profession=1752 https://eurohealthobservatory.who.int/countries/germany Header image credit: Peter Dargatz from Pixabay (Free for use under the Pixabay Content License)
So, you studied abroad, got your economics degree in Germany, and you’re ready to look for a job in the country. First of all, congratulations! You’re on your way to becoming a full-fledged economist.
In Rousseau’s original theory, a group of hunters track a large stag, finding that it follows a certain path. One hunter alone cannot kill the stag, but if they work together, they can trap the stag and all of them will eat well. However, if their trap is discovered, the stag will flee, and none of them will eat. The hunters agree to lay the trap and wait for the stag. After waiting for several hours with no sign of the stag, along comes a rabbit. The rabbit presents an opportunity for an individual hunter to eat, and it is easy prey. While the rabbit is worth less than the stag, it is easier to hunt, so its payoff in terms of utility is more certain. But if one of them leaps out of hiding to hunt the rabbit, the trap for the stag will be wasted, and the others will starve. Thus, the risk for each hunter is two-fold. Each risks not only that the stag will never appear but also that another hunter will secure the rabbit for themselves. Each hunter must make a choice: trust the others and hunt the stag for a potentially greater payoff, or hunt the rabbit for a smaller but more certain payoff. This scenario can be represented in game theory with a payoff matrix. Let’s look at a simple case of two hunters, or “players”, who face the payoff matrix below. If both players hunt the stag, they will each receive a payoff of 5. If player 1 hunts the rabbit, while player 2 hunts the stag, player 1’s payoff is 4, and player 2’s payoff is 0. Alternatively, if player 1 hunts the stag and player 2 hunts the rabbit, player 1’s payoff is 0, and player 2’s payoff is 4. If both hunt the rabbit, each will receive a payoff of 2. Each player must choose a strategy in the face of uncertainty about the actions of the other player. Player 2 Hunt Stag Hunt Rabbit Player 1 Hunt Stag 5, 5 0, 4 Hunt Rabbit 4, 0 2, 2 A stag hunt dilemma results in two pure Nash equilibria. One Nash equilibrium (Stag, Stag) is Pareto optimal and is the most preferred outcome. This outcome is payoff dominant since it has the highest expected payoff for both hunters. It is also risky because the other hunter may defect and hunt rabbits. The less risky strategy Nash equilibrium (Rabbit, Rabbit) is risk dominant. If one hunter decides to hunt rabbits, the other hunter’s best strategy is to hunt rabbits, too. This outcome is associated with the uncertainty each hunter has about the other hunter’s actions. For these reasons, the stag hunt dilemma is sometimes referred to as a coordination game, assurance game, or trust dilemma. The main obstacle is finding a way to coordinate individual decisions and strategies to achieve the best outcome. The greater the level of uncertainty between the players, the more likely that each individual will choose the less risky strategy, leading to an inefficient outcome. When players trust each other more or are able to establish strong agreements, they are more likely to cooperate. This last point is important for larger Stag Hunts. The more players are in the Stag Hunt game, the harder it is for players to trust one another and establish strong agreements. Therefore, the most socially optimal outcome (Stag, Stag) is harder to achieve as more people are added to the game. Good to Know One example of a stag hunt dilemma may be seen in international politics related to climate change mitigation. Suppose countries are discussing a way to curb carbon emissions. These nations may initially agree upon a particular strategy to reduce emissions. However, each nation faces an individual set of costs and benefits associated with following the agreed upon strategy. Nations then decide between a strategy of “cooperation” and one of “defection”. In 2016, the United Nations Climate Change Conference adopted the Paris Agreement, a legally binding international treaty to reduce greenhouse gas emissions and the global temperature. The agreement required countries to establish five-year national climate action plans. The agreeing countries must also submit reports to an international climate panel about their efforts, progress, and actions taken to achieve the long-term climate goals beginning in 2024. These reports will be used to develop recommendations for countries as they develop strategies for the next five-year cycle. But, even if many countries sign the agreement, some nations may not cooperate because they would receive benefits without having to pay the costs of climate change mitigation. And if nations don’t trust that others will sufficiently reduce their emissions, they may choose to “hunt the rabbit” themselves. Indeed, the Paris Agreement has been so far met with limited success. While many of these nations have taken steps to reduce their carbon emissions, many of them have missed their reduction targets over time. According to data published by the Climate Action Tracker research group, none of the world’s biggest emitters have reduced their emissions enough to stay on pace for the original 1.5 degrees Celsius goal. It seems that the stag remains just out of reach.
The stag hunt dilemma in game theory is a variation on the prisoner’s dilemma. It was developed by the French philosopher Jean-Jacques Rousseau and represents the conflict between social cooperation and personal security.
Sunk costs are by definition a past event, as they’re costs that the individual has already incurred and cannot recover. When you buy a good or service, that purchase becomes a sunk cost as soon as you finish the transaction (assuming that warranties and similar agreements don’t exist, in which case the transaction is finished once these “services” expire). Because the money is gone, it shouldn’t matter for any future decision-making. It’s important to note that sunk costs don’t just have to be monetary expenses. Expenditures of time and effort are also classic examples of sunk costs. For example, if someone starts an engineering degree but realizes they don’t want to become an engineer, the time, effort, and any money spent on the degree become sunk costs for the individual. Ideally, this person should realize they don’t want to be an engineer and choose a degree that will make them better off in the long run, no matter how long they’d been studying engineering. What is the sunk cost fallacy? The sunk cost fallacy is when individuals irrationally factor their sunk costs into their current decision-making. This can cause people (or businesses) to choose sub-optimal outcomes that don’t maximize their utility (or profits) – all because of a decision made in the past that can’t be changed. For example, imagine that you go to a theme park. You buy the weekend pass tickets in advance, and they cover park entrance fees for Saturday and Sunday (assume that they are non-refundable tickets). You spend your Saturday at the park and have a great time – let’s say that you gain 50 units of utility from this. Unfortunately, on Sunday it is forecasted to rain all day. Rain would ruin your park experience since it’s mostly outdoors and you hate rain. You would gain 0 utility from going to the park in the rain. But you’re an avid movie fan, and know that you could gain 10 units of utility from staying home and seeing a movie, avoiding the rain entirely. Knowing this, you, being a fully rational economic agent, choose to spend your Sunday not going to the park. You stay home and watch a movie instead. In this scenario, you end up with 50 + 10 = 60 utility for your weekend activities. It was unfortunate that it rained on Sunday, but you assessed your options and made the best of a bad scenario. But, if you fall prey to the sunk cost fallacy, you might go to the theme park on a rainy day anyway, have a bad day, and come out with less utility than you could have otherwise. This is an irrational decision. Since rain reduces your theme park utility on that day to 0 in this example, your total utility for the weekend ends up being 50 + 0 = 50 if you still go on Sunday. You’d have been better off ignoring your pre-paid Sunday ticket and doing something else instead! It’s psychologically difficult for most people to cut their losses and move on, causing many to become victims of this fallacy. Ironically, this is due to the loss aversion desire most decision-makers share. Most of us probably imagine that it would be difficult to give up on the pre-bought tickets for the second day, even if the rain was certain to come and ruin the experience. That’s because it feels like we’re losing the Sunday ticket – even though we already lost the money used to pay for it. But most economists would agree that giving up on the park and doing something more enjoyable instead is the right thing to do for a rational, utility-maximizing individual. It seems odd to watch a movie when the theme park ticket was already paid for – isn’t it a waste if the ticket goes unused? Our psychology often answers “yes” to this question. But, again, the economically correct answer is “no, because you can’t change the weather and your Sunday park ticket is now a sub-optimal usage of your time”. You must make the best of your current situation given the options and tradeoffs you currently face – past decisions should not affect the rational economic agent because they cannot be changed. Sunk costs in real-world business decisions Sunk costs don’t just factor into individual decision making, of course. They’re also important in business contexts, and shrewd managers will be on the lookout for the sunk cost fallacy in their decision making. Consider the market for cameras. Before digital cameras were invented, people relied on film to develop their pictures. These physical rolls of film had to be developed and processed, usually by a company offering film development services. Clearly, when digital cameras were invented, they greatly improved the photo industry. People could instantly develop and view their photographs without needing to waste money and time developing film. Kodak was once a giant in the camera and film industry. But, in the 1970s a Kodak employee developed the first digital camera and successfully earned Kodak a patent for the technology in 1977. This patent gave Kodak the ability to revolutionize the camera industry and establish itself as a leader in the digital camera market. Instead, Kodak decided to stick with film production and development, as the company already made a lot of money on film. They did not use their digital camera patent until far too late, when other companies had already established themselves as market leaders. It should have been clear to business leaders at Kodak that digital cameras were the future, and that they could have made massive profits by leveraging their digital camera patent. But instead, Kodak leadership considered the sunk costs – their familiarity with and dependence on film – and decided that they shouldn’t do anything. Despite eventually starting to sell digital cameras, Kodak was too far behind other companies. They never recovered their market share and filed for bankruptcy in 2012. It’s easy for a manager – and therefore, a business – to refuse to back out of a certain market or give up on a product when a lot of investment has already gone into it, just like Kodak managers did. When time and effort has been put into something, it’s difficult to take another course of action. Another prime example of the sunk cost fallacy is investment behavior in the stock market. Often, amateur investors believe that a stock will perform well, so they invest their money into the stock. When the stock unexpectedly falls, the amateur investor might still believe that it will do well, and has a desire to “recoup their loss” by waiting until the stock price recovers. Unfortunately, this might never happen, particularly when a company goes out of business. Rather than admit the mistake and reclaim their money at a loss, the amateur investor loses all of their money. Of course, other factors – like a lack of perfect information, and false hope – factor into this kind of scenario as well. But the sunk cost fallacy contributes to situations like these, and it pays to be aware of the mistake. Further Reading For a worthwhile book on sunk costs, look no further than John Sutton’s 1991 Sunk Costs and Market Structure: Price Competition, Advertising and the Evolution of Concentration. In this volume, Sutton uses economic theory alongside econometric evidence to examine the classic assumptions about market structure. Specifically, he examines the game theory-informed oligopoly models that were then advancing the theory of industrial organization. Sunk costs, along with a few other factors (like the intensity of competition) are an important determinant of market structure, according to Sutton. Good to Know This concept also begins to demonstrate how the traditional neoclassical assumptions made in economics are unrealistic. If such a widespread and relatively simple phenomenon has been widely observed, how could individuals be economically rational in every situation? Indeed, behavioral economics asks the simple question: what if humans (as individuals, but also in groups) fail to live up to these classic economic assumptions? The field is a vibrant one that brings economics and psychology together, seeking to augment economic models with deeper understandings of human behavior.
Sunk costs are an important concept in economics. A sunk cost is an expense (of money or potentially time) that someone has already paid in exchange for a good or service; sunk costs cannot be recovered. This cost should therefore not feature in any decision making process, but often individuals fall victim to the “sunk cost fallacy” and factor these costs into their decisions anyway. This article will dive into sunk costs and explain how this fallacy reveals our sometimes irrational human nature.
Which economists are paid the most, and where?
Around the world, economists are paid well compared to other occupations. This may not be a surprise, but how much economists are paid, how different employers compare in terms of pay, and other factors (such as “is an economics PhD worth the pay increase?”) may be less clear to burgeoning economists. This article will shed some light on these questions and more using our data from the 2022 INOMICS Salary Report. Read on to learn more about which employers pay economists the most, regional differences in economist salaries, and more. This article will discuss both academic and non-academic (or “industry”) economists. If you’re curious about the differences between these two general types of economists, you should read our article written by an economist who has worked in both spheres, “Policy or academic economist: which should I become?”. Regardless of an economists’ chosen path, how much can one expect to earn, and which economists earn the most? An Overview of Economist Salaries Globally As mentioned above, many organizations value the specialized skills that economists bring to the table. The below graph constructed from our 2022 Salary Report data shows how average economist pay varies by these different types of employer around the world: Figure 1: Regional average salaries by employer type (USD, PPP-adjusted, thousands) Figure 1 shows average economist salaries by each type of employer in different regions around the world (note that a handful of series are excluded due to sample size issues, i.e. NGO in East Asia & Australasia). Two things stand out from this figure. First, average pay in North America is very high, while average pay in Western Europe & Scandinavia and East Asia & Australasia are the next highest on average. The other regions of the world are more comparable with each other (we will explore each region individually later on in the article). Second, central banks appear to pay economists the most on average. Readers might be interested in the very high central bank salaries in East Asia & Australasia; the entire sample of central bank economists from the region in our survey are located in Hong Kong, which is a high-paying city in its part of the world. Private businesses and governments also pay quite well in general, with the exception that government pay in North America appears to be lower than other options there. Meanwhile, research institutions and NGOs appear to pay the least, though the difference is not stark. While this graph is interesting, one important detail is left out that can skew the results. More educated economists are paid more highly, so the proportion of PhD-holding economists in each role should be accounted for as well to get an even more accurate picture of economist pay. Salary Breakdown by Type of Employer and Level of Education Some employers, like central banks, are more likely to require an economics PhD. Thus, on average these employers offer higher salaries for their highly educated workforce. On this basis, it is useful to differentiate between the level of education when comparing salaries offered by different types of employers. This breakdown can be seen for each region in the following Figures 2 – 9. Note that our survey data lacks a sufficient sample size of Bachelor’s degree respondents to subdivide Bachelor’s economists by employer type. This is partially because most economists attain at least a Master’s degree; it is rare, though not impossible, for an economist to develop their career with only a Bachelor’s degree. These salaries are presented in thousands of USD, and were converted using purchasing power parity data taken from the World Bank1 (PPP conversion accurate as of January 20, 2023). Figure 2: Average salary by position and degree in North America (USD, PPP-adjusted, thousands) In North America, a PhD in economics has a clear payoff in terms of salary, especially for university and private business positions. Government, NGO, and research institution roles pay less of a premium for PhDs, but even these still pay roughly 35-40% higher salaries to PhDs than for Master’s degree holders. The lowest pay gap is at central banks, but these institutions tend to hire only accomplished economists with many years of experience. Getting a job at a central bank with only a Master’s degree likely requires extensive years of experience that early-career economists don’t have. Figure 3: Average salary by position and degree in Western Europe and Scandinavia (USD, PPP-adjusted, thousands) In Western Europe and Scandinavia, a PhD in economics also has a clear payoff in terms of salary for university, research institution, and private business positions. However, other roles feature less pronounced differences. Economists who wish to work in government or in an NGO in Western Europe ought to examine the local conditions and the payoff of a PhD in their country and subdiscipline to assess if it’s worth it. Central banks also do not appear to pay a premium for PhD economists in this region, but again these institutions tend to hire economists with many years of experience, so getting a job at one with only a Master’s degree as an early-career economist might be difficult. Figure 4: Average salary by position and degree in East Asia & Australasia (USD, PPP-adjusted, thousands) In East Asia and Australasia, economists with a PhD enjoy a significant pay increase in university, research institution, and private business positions. Central banks once again pay the most for economists in this region, though no central bankers with a Master’s degree responded to the survey in this region, perhaps suggesting that central banks are less likely to hire economists without a PhD in East Asian / Australasian countries. In this region, a PhD appears to be well worth the investment of time and effort. NGO or charity and government roles are not included due to small sample size. Figure 5: Average salary by position and degree in Central, Southern & Eastern Europe (USD, PPP-adjusted, thousands) In Central, Southern and Eastern Europe, starting a career as an economist with only a Master’s degree is feasible, but a PhD is an excellent investment in terms of salary. Almost every employer type in this region pays a premium for an economics PhD. An interesting exception are central banks, which actually feature higher average pay for economists with a Master’s degree. Again, it’s important to note that getting a job at a central bank usually requires years of experience and demonstrated expertise; it’s possible that central banks in this region do not emphasize a PhD as strongly as extensive work experience when recruiting economists. NGO and charity roles are excluded due to small sample size. Figure 6: Average salary by position and degree in South Asia (USD, PPP-adjusted, thousands) In South Asia, universities and private businesses pay a (relative) premium for economists with a PhD. Economists in these roles stand to gain much from pursuing a PhD. Meanwhile, Research institution pay is about equal for economists with a Master’s or a PhD. A large amount of highly-paid, Master’s degree-holding economists in NGO and charity roles work in this region. In fact, the highest paid role in these regions appear to be for those types of economists. This could be due to foreign investment or aid programs, which typically spend money on projects that industry economists – not academic ones – would manage, or other factors. Central bank roles are not reported here due to small sample size. Figure 7: Average salary by position and degree in Caribbean, South & Central America (USD, PPP-adjusted, thousands) In the Caribbean, South America, and Central America, a PhD in economics appears to be a worthwhile investment. Almost every position pays a premium for an economist with a PhD in this region; those at private businesses and NGOs or charities stand to gain the most from attaining a PhD. One exception is government roles, where economists with a Master’s degree slightly out-earn PhD economists on average. Figure 8: Average salary by position and degree in Middle East, Central Asia & North Africa (USD, PPP-adjusted, thousands) The Middle East, Central Asia, and North Africa is similar to the Caribbean, Central and South America region. Here too, a PhD in economics pays off very well. Every employer except for NGOs pay a premium for an economist with a PhD in this region. The highest earners appear to be PhD economists in universities and in government, alongside Master’s degree holders in NGOs. But, in this region NGO pay is very high. Like with South Asia, it’s possible this is due to foreign aid or investment being sent for projects or investments that are closely related to industry economists’ jobs, which in general may not require as much education as academic economist roles. Figure 9: Average salary by position and degree in Africa (USD, PPP-adjusted, thousands) Africa is a unique region when it comes to economist pay. Pay in government and for private companies follows a similar pattern as other regions, where a PhD in economics grants a sizeable increase in pay. Universities still follow this pattern, though pay at universities in African countries typically appears lower compared to other economist jobs in Africa relative to the rest of the world. Besides this, economists with a Master’s degree earn decent pay in other roles. Unless one wishes to work for the government or a private organization in Africa, a Master’s degree in economics might be sufficient. The most highly paid academic economists out-earn most industry economists It may appear from these graphs that academic economists earn less money than their counterparts in industry. While the value of a PhD is clear in certain cases, like with high private company pay, it might not be clear whether it’s worth it pay-wise to enter academia. However, these averages by employer type mask one important fact: professors of economics earn much more money than non-professor-level economists employed at universities. In fact, professors of economics earn salaries that are comparable to the highest earners in industry. This can be seen below in Figure 10: Figure 10: Average salaries for economist jobs globally (USD, thousands, PPP-adjusted) Figure 10 shows that industry positions pay more than academic positions on average, but economics professor (and to a lesser extent, associate professor) salaries are comparable to high-paying industry positions. Professors of economics on average are only outpaid by executive leadership roles. Thus, new economics PhDs should not be discouraged from entering academia by somewhat lower salaries shown in the regional breakdowns. Although industry economists will out-earn most academics in junior roles, a full professor of economics salary makes up the difference, only out-earned by executive leadership roles. Are you curious to learn more about economist salaries? Help INOMICS analyze even more about the state of pay in economics by answering our anonymous Salary Survey. It only takes a couple of minutes and is available here: https://inomics.com/salary-survey. After answering the survey, you’ll have the option to subscribe for early access to the results, published in the fourth quarter of each year. And if you’re looking to take the next step in your career as an economist, we can help. Check out available courses, jobs, and programs to find the next skill, degree, or job in your path as an economist. No matter your choice of degree or position, economists have much to offer – and their compensation often reflects their valuable skills, and the contributions they make to the economy, and society, around them. The above article first appeared in the INOMICS Handbook 2023, which you can download on our site. Sources: 1: https://data.worldbank.org/indicator/PA.NUS.PPP. PPP data originally accessed on January 20, 2023. PPP data may have changed since that date. Header image credit: wirestock on Freepik/Magnific (free license)
The following article first appeared in the INOMICS Handbook 2023. Download the INOMICS Handbook
The INOMICS Questionnaire: Fratzscher vs Gómez Pineda
The interview with Dr. Gómez Pineda offers an interesting look into the thoughts of an accomplished central banker. For early-career economists in particular, it is not only enlightening but full of essential advice, not least of which is the importance of continuous learning and reading. Our advice – start your reading here! Javier G. Gómez Pineda is Senior Economist (Investigador Principal) at Banco de la República (the central bank of Colombia). He also teaches Monetary Economics at Universidad del Rosario in Bogotá. His research interests are in Monetary Economics and International Economics; he is author of the textbook Dinero, banca y mercados emergentes, los países emergentes en la economía global, 2010, Ed. Alfaomega; and he holds a PhD in Economics from the University of Chicago. His interview responses to Dr. Fratzscher’s queries are below. Marcel Fratscher: What is your favorite place on earth? Javier Gómez Pineda: To start with, I would like to express my gratitude for this interview and having the opportunity to share my thoughts. My favorite place on earth is where you can share with your loved ones. To me, it is home. As for places you get to be around as an economist, I would say my favorite place would be the macro seminar at the University of Chicago. As a student at Chicago, I had the chance to see several papers being greatly improved by comments from the audience. I recall once or twice Gary Becker gave incredible micro feedback to two macro papers. MF: Outside of economics, what occupation would you choose if you could be absolutely anything? JGP: I think I would be a civil engineer to help improve infrastructure in Colombia. As an economist, in a way I happened to be sort of a civil engineer when I got involved in the implementation of the inflation targeting framework in Colombia back in 2000. However, I would choose in the first, second and third place to be an economist. MF: What is the virtue you appreciate the most? JGP: An important virtue is that of studiousness. At whatever level you consider, studiousness enables you to better understand and help improve the world you live in. Working in research and teaching is a privilege and a continuous opportunity to exercise this virtue. Students should keep in mind that knowledge is not something that ends at graduation, you always have to keep learning and maintain yourself actively, even if you are not in a research or teaching job. MF: Your all-time favorite figure in economics? JGP: Robert Lucas. Thanks to the Lucas critique, we no longer rely on those unsafe reduced-form econometric equations. It is also thanks to the rational expectations revolution that we now routinely use rational expectations DSGE monetary policy models, although we have had to amend them with frictions so that they are not too forward-looking. Finally, I think the methodological approach of welfare evaluation is one that continues to bear fruit as progress continues in macroeconomics. MF: Your #1 economics blog? JGP: I read VoxEU CEPR to learn about the work of several macroeconomists who share their views there. Also, as I drive to teach my course on Monetary Theory, I listen to the Macro Musings podcasts of the Mercatus Center of George Mason University. MF: Your ideal student? JGP: Every student is special and different in his or her own way and worth the best teaching effort. That said, in my opinion, the ideal student is the one that later becomes your co-author. That turn of the matters means that the student had been motivated enough to learn the material and develop his or her vocation, hopefully becoming a better version of him or herself. MF: What should be done to address gender bias in research in economics? JGP: Although I am not very knowledgeable about this topic, in my humble opinion I understand that the gender bias in research in economics could be expected to improve as a consequence of the influence of current female role models on school enrollment. There are currently outstanding role models in academia, such as Esther Duflo, as well as in policy institutions such as the IMF, the Fed and the ECB, such as Kristalina Georgieva, Gita Gopinath, Janet Yellen, and even cases of lawyers working on economic issues, such as Christine Lagarde. MF: What is the most misguided research agenda in economics? JGP: Misguided literally means with the wrong guide. When we listen to the weather forecast in the morning, we do not get yesterday’s weather, but a forecast for the future of the day or the week. Yet our models and analysis have too often been retrospective, backward looking. Thanks to the rational expectations revolution and the view of economics as something you can put in a computer and run, as Robert Lucas has said, we have come to routinely run prospective, forward-looking models that enable us to situate ourselves in what matters. At the other extreme, we have also had to amend overly forward-looking models because they lose touch with reality, with the data. In that sense, a well-guided research agenda means a fair amount of forward-looking weight in our models and analyses. MF: What is the most promising current research field or issue in economics? JGP: Macrofinancial policy and its effect on financial deepening would be an area with high potential, particularly in emerging markets and developing economies. We saw the cost of loose macroprudential standards on financial crises in emerging and developing economies in the 1997-1999 financial crisis and in advanced economies in the 2008-2009 financial crisis. Since then, several macroprudential instruments have been put in place and the amplitude of the financial cycle has been tamed. Although good in themselves, these policies could have subdued financial deepening and hence growth. Then, the challenge is two-fold: a stable financial system and progress in financial deepening. MF: Where does economic research have the most influence on policy-making? JGP: The most influence has definitely been in monetary policy. The controversy between monetarists and Keynesians that lasted for about the complete second half of the past century led to a fruitful synthesis, the New Neoclassical Synthesis (NNS). It is a practical theory for monetary policy making, a language for communication between monetary policymakers and the core of the forward looking operative procedure of central banks. As someone [ed: the psychologist Kurt Lewin in 1952] once said, there is nothing more practical than a good theory; this point of view I think applies very well to the NNS and its practical use in monetary policy. MF: On what issues should policy listen more to economists? JGP: Economics has much to contribute to any field that involves incentives. Rational choice is our grand piece of theory that we can export to contribute to other disciplines. The homo economicus behaves rationally and can also respond to changes in incentives, as dictated by policy. One policy field where incentives can induce change in behavior is in climate policy. Incentives should be paramount in articulating and implementing tax and subsidy climate policies and in inducing change in behavior. Another area where incentives can be put to work at great benefit is road traffic. Congestion taxes can contribute to a more efficient use of roads as a public good that is in short supply. I am sensitive to this issue given my long commuting times in Bogotá. Finally, market competition can help improve living standards in all markets that are not natural monopolies. Examples are the educational and health systems. MF: What is your career advice to a young economics researcher? JGP: My advice would be to always read with a humble attitude rather than being too critical. Read, always aiming to learn from your colleagues. Read and read a lot. Then you will find where you would like to put your effort. Then think, think about your arguments and theses, and then, only then, be critical - of your own work. To improve your thinking, engage with others and work in groups. The above article first appeared in the INOMICS Handbook 2023, which you can download on our site.
The following article first appeared in the INOMICS Handbook 2023. Download the INOMICS Handbook President of the DIW Berlin and well-known macroeconomist, Prof. Dr. Marcel Fratzscher poses the questions for accomplished central banker and author Dr. Javier G. Gómez Pineda in this latest INOMICS interview, where we ask economists for their thoughts about life and economics. Dr. Gómez Pineda graciously took to the spotlight in this latest round. The interview, dubbed Fratzscher vs. Gómez Pineda, dives into the importance of the Lucas critique, role models for women in economics, the challenges with maintaining global financial market stability (while still allowing for growth for emerging economies), how economics can contribute to climate policy, and more.
When goods can only be enjoyed by the buyer – or the intended gift recipient – after it’s been paid for, as is the case for most goods, the good is considered excludable. It might seem that almost every good is excludable. After all, when you buy something, it’s yours to use. But, there are goods where access by non-payers cannot be prevented, often because it is prohibitively expensive to do so. Economists call these non-excludable goods. Examples of non-excludable goods include many publicly available goods and services, like public roads, beaches, and national defense. These are widely accessible to everyone, even to people who don’t pay for the good or service in question, and it is prohibitively difficult to prevent any specific individuals from accessing them. For example, although some individuals dodge or underpay their taxes, they still benefit from their nation’s national defense spending, and can’t be easily excluded from that. And they can still access public roads at any time. Likewise, air is nearly impossible to exclude from specific individuals. Air is present everywhere and is necessary for life. To charge for the right to breathe air would be very difficult to enforce, probably more trouble than it would be worth, and (of course) morally wrong. When goods are non-excludable like this, it can create certain problems. For instance, a Tragedy of the Commons situation may arise when a shared space is overused. Because nobody can be prevented from using it, ownership is unclear, so there is a lack of responsibility in cleaning and maintenance of that space. Over time, the space deteriorates due to overuse and neglect. An example of a non-excludable resource that might experience a Tragedy of the Commons situation is fish in a lake. As more people fish in the lake, there are fewer fish for others to enjoy. The water might also become more polluted from fuel runoff and plastic waste products as people carelessly use the space. But, it is extremely difficult and probably not feasible to prevent specific individuals from going to the lake and fishing. Of course, much of the time goods have limited access that is enforceable. This means that the only way to enjoy the good is by paying for it; those who do not pay cannot access the good (again, unless someone else pays and gifts it to them), and it’s easy enough for the producer to prevent non-payers from accessing the good. Examples include golf club memberships, cable TV subscriptions, bananas, and shoes. You cannot legally enjoy a Nike Air Jordan shoe without first buying it, and it’s easy for Nike to prevent you from wearing Air Jordans unless you pay for it. Thus, shoes are an excludable good. Good to Know While the distinction between excludable and non-excludable may seem cut and dry, it’s possible that non-excludable goods can become excludable. And, different goods might be more or less excludable than others. To continue using the lake example, a lake located on publicly accessible land would be non-excludable as discussed. However, if the land was purchased, made private, and fenced in, that same lake could be considered excludable. This process would probably be expensive, though it is technically possible; many resorts, golf clubs, or wealthy landowners enjoy private property that may feature a lake. Small bodies of water are typically excludable in this manner. But, very large lakes would probably not be worth fencing in or blocking off due to their size. Therefore, one would expect a large body of water to be “more excludable” than a small one, despite the fact that both could theoretically be fenced off. This is often the case with excludable goods – some are more excludable than others. When economists describe a good as excludable it’s often not worth the cost of preventing others from accessing the good – even if it’s theoretically possible. Further Reading Excludability is just one characteristic that defines certain types of goods. Another closely related concept is rivalry. Together, rivalry and excludability define four categories of goods: public goods, private goods, common goods and club goods. Read the linked articles for more information on each of these.
Ordinarily, people buy goods in the market, and then they consume those goods for themselves. This increases their utility and generates consumer surplus. Usually, this process only requires a willing consumer and producer who agree upon a price. Other individuals aren’t benefited or harmed from this exchange (unless externalities are present), nor can they enjoy the good or service that the buyer paid for (unless the buyer gives it away as a gift).
But elasticity is not the only way economists classify goods. Another important characteristic to consider is how consumption of a good affects its ability to be consumed by others. Specifically, if consuming a good reduces the ability of other people to consume it – or if a good cannot be enjoyed by more than one person at a time – it’s called a rival good. Economists might also say that this good exhibits “rivalry in consumption”. Rival goods include many everyday items, like drinks and food. As someone drinks their beer, there is less of that beer for someone else to consume. Similarly, if your friend eats a cookie at a party, you cannot enjoy that cookie – it’s gone. Clothing items are also rival. Even though you could lend your favorite scarf to a friend, when you’re wearing the scarf, nobody else can. Therefore scarves (and most other clothing items) are considered rival goods. Other examples of rival goods include tickets to a concert, seats in a restaurant, and booking air travel. When you purchase or reserve one of these goods, you consume a spot that another person cannot claim. It might seem like every good is rival - after all, if you buy something, it’s yours. But there are many goods and services that don’t follow this pattern. Consider a streaming service. When you pay for a subscription to a streaming service, you’re able to consume as many movies or TV shows from that service as you want. But no matter how much you watch, it will not diminish the amount of movies left for other people to enjoy. Goods like this that lack rival characteristics are simply known as non-rival goods. Other examples of non-rival goods include a fireworks display, music albums, and national defense. In each of these cases, enjoying the good or service provided does not diminish the amount available for others to enjoy as well, nor does it prevent another person from enjoying the good at the same time. Good to Know This rival or non-rival characteristic of goods may seem similar to the concept of externalities, but they’re not the same. For example, it might be argued that a negative externality is produced when someone consumes a cup of coffee, leaving less coffee for others. But this logic is flawed. Someone enjoying their cup of coffee does not produce a negative externality (such as loud noise, pollution, etc.) for others. While the cup of coffee is rival – once consumed by its buyer, it cannot be enjoyed by anyone else – it does not actually affect others outside of this interaction. Consider an individual wandering by who isn’t involved in the market for coffee; the coffee lover finishing their cup doesn’t harm or benefit this individual in any way. Further, recall that the definition of an externality is a benefit or cost that is not factored into the market price. When private goods (like coffee) that do not otherwise create externalities are sold to an individual consumer, the market price already reflects the cost of production and overall demand from every individual participating in the market. Barring situations like monopoly, price ceilings, or other deadweight loss-causing market interventions, the perfectly competitive market price will nudge individuals to consume the socially optimal amount of coffee. This means that an externality is not present. Further Reading Just as goods can be rival or non-rival, goods can also be excludable or non-excludable. While these may sound like similar terms, they measure different things. Together, rivalry and excludability define four different types of goods. These are private goods, public goods, club goods, and common goods. See the article on excludable and non-excludable goods for more information about this characteristic.
In the modern economy, consumers exchange money to acquire goods and services that increase their utility. There are many different kinds of goods and services, and many ways that economists can classify them. For example, price elasticity of demand and income elasticity of demand can tell economists whether goods should be considered normal, luxury, Veblen, inferior, or Giffen goods.
Why are top management consulting firms increasingly hiring Economics PhDs?
Every Economics PhD student has contemplated a career outside academia at least once. There are multiple alternative options available to trained economists, and the INOMICS Salary Report shows that about 30% eventually opt for the private sector (though the true number may be higher, as INOMICS has a high proportion of academic users). In recent years, top consulting firms (such as the “Big 4”: KPMG, PwC, Deloitte, and EY) have increasingly been hiring Economics PhDs, many through specifically designed advanced degree pipelines – a trend that may surprise some. But why are these firms seeking out economists for their consulting teams, and what benefits do economists bring to the table? I spoke with a human resources manager from one of the Big 4 firms to learn more on the matter, and to help thousands of Economics PhDs like myself know our options better. First, it's important to reiterate what an Economics PhD entails to figure out why these students are in demand. Economics is the study of how societies allocate scarce resources to satisfy unlimited wants and needs. An Economics PhD program involves advanced coursework in microeconomics (the study of individual decision-making) and macroeconomics (the study of the economy as a whole), as well as training in statistics, econometrics (the application of statistical methods to economic data), and mathematical modeling. PhD students also typically conduct independent research, which requires them to develop analytical skills, conceptual thinking, and the ability to identify patterns and trends in large amounts of data. Management consulting firms are known for their ability to help businesses solve complex problems and achieve their strategic objectives. Therefore, the interview process typically includes several rounds with at least one case interview; this type of on-the-spot analysis isn’t a skill that’s traditionally taught in economics courses. So why are they interested in hiring Economics PhDs? Here are a few key reasons: Strong analytical skills Economics PhDs are trained to analyze data and identify patterns in the economy and society, discovering and testing trends that may not be immediately apparent. They are also skilled in developing hypotheses and testing them using statistical models. Economics PhDs are trained to make sure no assumption is left untested, and no conclusion is reached unproved. This makes them valuable assets to consulting teams, who often work with large amounts of information and data, and need to make sense of it quickly in order to provide actionable insights to clients. Image credit: our-team on Freepik.de Familiarity with economic theory Thanks to their rigorous training, Economics PhDs deeply understand economic theory. It provides them with a framework for understanding how different factors may impact a client’s business on both the microeconomic (individuals and firms) and macroeconomic (industry and economy) levels. This theoretical background can be especially valuable when working with clients in industries that are undergoing significant structural changes or facing new challenges, such as disruptive technology or geopolitical tensions. Someone who studied economics would be able to identify these changes and predict future impact on business. Data science skills PhDs with a degree in Economics gain diverse data science skills in graduate school, including quantitative modeling and data visualization skills. They are trained to solve problems while ensuring that the results generated from statistical models are valid and reliable. Articulating methodology (‘Why should we employ this model?’) and conducting a series of robustness checks (‘Can we trust the results?’) are standard tools used by Economics PhD students when doing economic analysis. These skills can be especially valuable when working with clients who need data-driven insights to make key business decisions. Ability to conduct rigorous research Doctorate programs in economics typically require students to conduct independent research, which takes several years to complete. Economics PhD students design and manage their own research projects (or parts of them) as well as their own personal time and resources to keep the work going. This is a crucial skill for a consultant, as the nature of their job dictates independent work and the ability to multitask between projects. Economics PhD graduates come already prepared for this challenge. Strong communication skills Effective communication is key in consulting work, as consultants need to be able to clearly explain complex concepts and findings to clients who may not have a background in economics. Economics PhDs are often skilled communicators, as they are used to presenting their research to both academic audiences and non-experts during graduate studies. Breadth of knowledge While Economics PhDs are often experts in their particular field, they also have broad knowledge of other areas of economics, and related fields like finance and statistics. This breadth of knowledge can be valuable when working with clients who operate in diverse industries or who face complex challenges that require a multidisciplinary approach. Last but not least, corporate clients like working with smart people, and having a PhD on the team can be a big boost to credibility. Several qualities set consultants with a PhD degree in Economics apart: rigorous field knowledge that Economics PhD students acquire during their training and through their independent research, scientific integrity, global outlook, and a curious mind that is on a constant search for an intellectual challenge. Seeking a consulting job as an Economics PhD Given these benefits, it's not surprising that consulting firms are increasingly seeking out Economics PhDs for their teams. In fact, some firms have even started recruiting directly from PhD programs, offering students the opportunity to transition their economics career from academia to consulting. If you’re coming from an economics PhD program and interested in this type of position, be sure to highlight these skills on your resume. The interview process for consulting positions typically includes several rounds with at least one case interview, where you will be put on the spot to solve one or more hypothetical business challenges. There are numerous books and online resources to help prepare for these specifically. As businesses face increasingly complex challenges, the need for data-driven insights and rigorous analysis will only continue to grow. In that sense, Economics PhDs bring unique skills and expertise to the table. Be sure to fully consider your employment options, and consider whether a consulting firm hiring economics PhDs could be the right place for you. The above article first appeared in the INOMICS Handbook 2023, which you can download on our site. Header image credit: Drazen Zigic on Freepik.de.
So what are indifference curves exactly, how are they created, and how should they be interpreted? Indifference curves are usually drawn for individuals. It is assumed that the individual is rational, has consistent preferences that don’t change, seeks to maximize utility, and that their utility increases with more consumption. These assumptions are useful because they allow us to draw usable and meaningful indifference curves where each curve represents the same level of utility at every point on the curve. This is an important point that bears repeating: individuals achieve the same level of utility at any point along a single indifference curve. As can be seen in Figure 1, each indifference curve is a line on a graph, where the axes represent goods or services that the consumer must choose between. Each line plots the combinations of products that would offer a specific level of utility for the individual. In this case, the indifference curves drawn are U and U’. Figure 1: Standard indifference curves with budget constraint Usually, the axes represent two different products or services the consumer can spend their budget on, often labeled Good A and Good B or X1 and X2. But sometimes, economists lump together “all products except X1” as one axis, and X1 as the other axis. This setup allows economists to study a consumer’s demand for X1 in relation to everything else the individual could spend their money on. The points in the graph, and on each indifference curve, represent different mixes of products that the individual can consume. For example, point (qX1,qX2) is the point where the individual consumes qX1 units of good X1, and qX2 units of good X2. Economists call points like these “product bundles” or just “bundles”. Every point in the graph represents a combination of two goods that constitutes a bundle. As another example, the origin – the point (0,0) – is the product bundle where the individual consumes 0 units of good X1 and 0 units of good X2. An important point to know about indifference curves is that curves higher and to the right are always better (more desirable; yield higher utility) than curves lower and to the left. This is because higher indifference curves contain larger, better bundles that the individual can consume (remember that we assume individuals get more utility from consuming more). Therefore, every point on indifference curve U’ is more preferred to any point on curve U, because any point on curve U’ yields more utility than any point on U. In more mathematical terms: because the axes are increasing in X, and because utility increases as the individual consumes more (or, as X increases), indifference curves further from the origin of the graph represent higher levels of utility. Some indifference curves are more preferable than others. But are some bundles on a given curve better than any other bundles on that curve? No – recall that the individual achieves the same level of utility for the various bundles along a single indifference curve. This is where indifference curves get their name from; because the individual’s utility is the same at every point along the curve, they are indifferent between consuming any combination of X1 and X2 that places them on the same curve. For example, consider someone – Paula – who’s deciding between bundles of apples and oranges, and values them equally. Paula would equally enjoy eating 4 apples and 2 oranges as eating 2 apples and 4 oranges, so both of these points would be on the same indifference curve – perhaps like U. But, she would strictly prefer eating 6 apples and 4 oranges to either of those earlier options, so this point is on a new, higher indifference curve – like U’. Finally, included in the graph is a straight, linear line. This represents the consumer’s budget. People can only consume what they can afford; this is represented by the budget line. As noted before, a person will choose the highest indifference curve they can reach given their budget. For the indifference curve to be affordable, it must touch the budget line at one point at least. This means that the individual represented by our graph will choose the optimal consumption bundle (qX1,qX2), resulting in utility U. To get to this point, the person will choose to buy qX1 units of X1 and qX2 units of X2. On the indifference curve IC’ the individual would obtain even higher utility U’, but unfortunately this indifference curve is not attainable given the individual’s current budget M; it does not touch the budget line anywhere. Good to Know This still leaves the question of how indifference curves are made. How do economists draw one in real life? Indifference curves are generated from a utility function. These are mathematical formulae that represent the preferences of a single individual. To make an indifference curve for a consumer, an economist sets the consumer’s utility function equal to a constant, and plots every point in the function equal to that constant. This maps out a curve like U’. Of course, it’s difficult to know people’s utility functions in real life. The best method for discovering them is to observe the ways that people spend their money and their time. This is partly why marketing and market research are so important for many businesses. If companies can learn people’s preferences (or influence them), they can attract more customers by designing products they enjoy the most. Further Reading Indifference curves are a foundational concept, particularly in microeconomics, partly because they can actually be used to create demand curves! To see how, consider again the graph above. If X1 represents oranges, and X2 represents every other good in the economy, the indifference curves represent a single consumer’s preferences for oranges compared to everything else they could buy. In other words, this is the consumer’s demand for oranges! So, to calculate a demand curve for a good or service, an economist can combine every individual’s indifference curves for good X1. The resulting curve incorporates everyone’s preferences, and so tells the economist how much of X1 will be demanded compared to every other good in the economy. Of course, this process can be more difficult than it sounds. To learn more about the relationship between indifference curves and the demand curve, check out Chapter 6.4 of Principles of Microeconomics by the University of Victoria.
Indifference curves are a common sight in economics courses. They’re a foundational and helpful concept for economics students because they help economists easily depict people’s preferences. This can show the economist how someone is likely to spend their budget, what they’ll prioritize in order to maximize their overall happiness and well-being (or utility), and more.
But this is not a smooth process; jobs are lost and industries are destroyed as new jobs and new industries are created. The concept of creative destruction is best illustrated with an example. Creative destruction in action Consider the market for movies. In the past, movies were viewed in the theater or purchased on VHS or on a DVD. There was an industry built around renting or buying movies in VHS and later DVD format for home viewing. Blockbuster was a major retailer that had a big movie rental business, though they sold other goods and services as well. At its peak in 2004, the chain had over 9,000 stores and was worth more than $5.9 billion (USD). But today, Blockbuster has just one store left in the entire world (located in Bend, Oregon in the US). The store even draws tourists who remember the iconic chain and want to visit!1 So how does a massive, successful, multinational business almost entirely disappear in just a few years? Creative destruction is to blame. Netflix was founded in 1997 and at first was in the business of sending DVDs by mail. In 2007, Netflix launched its online movie streaming service, which allowed customers to watch movies on demand without leaving the comfort of their homes. It also eliminated the need to return a DVD, which was a chore many people disliked doing. While streaming over the Internet is incredibly common today, Netflix was the first major company to succeed at offering online streaming video services. Streaming a TV show or movie over the Internet is more convenient than renting a DVD for the vast majority of people. As such, when the technology became widespread, people flocked to online streaming services and abandoned DVD rentals. This caused companies like Blockbuster to lose money and go (almost completely) out of business. The movie rental business today is a shadow of its former self, having been replaced by online streaming. The pros and cons of innovation The advent of streaming resulted in an increase in overall welfare for society. It made movies more accessible for everyone and decreased the time investment required to get a new movie as well. This might sound like a Pareto improvement, but it wasn’t. That’s because people who relied on the old movie rental industry for their livelihoods were potentially harmed more than helped by the rise of streaming. As old, now-obsolete industries go out of business because of new, better technologies or services that are introduced, many people in the old industries lose their jobs. This period of unemployment is hard for most people since it results in a utility-reducing loss of income and a period of uncertainty when looking for a new job. Some of these workers might not recover their original level of utility, especially if they had specialized skills that are no longer needed. Therefore, some people are made worse off even if society overall is made better off. This is why Joseph Schumpeter named the process “creative destruction”. While new things are introduced and invented that improve society, in a capitalist system there are ultimately individuals who lose out because of this progress, too. And there is no guarantee that displaced workers will find new careers that are as fulfilling as their previous ones. To recap, innovation successfully permeates markets and has positive overall welfare effects, but it comes at a cost. Elements of this cost are, for example, unemployment and loss of capital as mentioned above. Thus, the term “creative destruction” tries to convey both meanings. Innovation is the utility-improving fruit of creativeness, and destruction is its utility-diminishing by-product. Creative destruction is not all bad. In fact, innovation is one of the core ingredients of the Cobb-Douglas production function. Economists agree that technological progress created by innovation is a good thing for society, as the positive effects of innovation almost always outweigh the destructive aspects. Overall, innovation and the process of creative destruction allow our economies to grow and be made better off overall. Further Reading The phrase “creative destruction” is attributed to Austrian economist Joseph Schumpeter, who coined the term in his 1942 book Capitalism, Socialism, and Democracy. He described capitalism as “the perennial gale of creative destruction”, referring to how the progress of innovation and economic growth causes upheaval in certain economic sectors and can create misfortune for some even as it improves society overall. His work is worth a read; it’s considered a classic not only in economics but also in the social sciences in general. References 1: https://www.businessinsider.com/rise-and-fall-of-blockbuster
“Creative destruction” in economics is a phrase that describes how the economy reacts to change. When innovation introduces new technologies, the economy moves to phase out outdated or obsolete goods and services in favor of new, more efficient ones.
Silent Success: How Quiet Quitting Can Boost the Economy
Rather than pushing ourselves to the brink of exhaustion, quiet quitting involves recognizing when something is not productive and making the decision to step back and reassess. This can lead to greater productivity, increased creativity, and ultimately, a stronger economy. In this article, I'll explore how quiet quitting can affect the economy. I'll delve into the benefits of taking a step back, the impact it can have on our mental health, and the potential economic benefits of a more balanced approach to work. So sit back, take a deep breath, and let's explore the power of quiet quitting. Understanding quiet quitting Quiet quitting involves a strategic and intentional decision to let go of unnecessary tasks, projects, or overtime work in order to redirect time and energy towards more fulfilling or productive endeavors. At its core, the concept refers to withdrawing from tasks beyond one’s assigned duties and becoming less personally invested in work. Quiet quitters continue to fulfill their main job responsibilities, but they turn down activities that involve going above and beyond. No more working late, showing up early, or participating in non-mandatory tasks. Simply no extras. It’s worth mentioning that there's an irony in calling it "quitting" when employees are still showing up for their jobs and doing their work. It seems unreasonable that current society glorifies constant work and a hustle culture mentality, to the extent that performing the tasks expected of you within your designated work hours and then leaving is now being referred to as "quitting". The quiet quitting trend did not appear by accident; its emergence is linked to the COVID-19 pandemic. Due to the pandemic, many individuals lost their jobs, resulting in a smaller workforce than before the outbreak. Although some people have secured new employment or been rehired, existing workers have been experiencing more pressure as some have been tasked with additional responsibilities that laid off workers used to fulfill. In other words, the concept of quiet quitting seems to be an extension of the Great Resignation, where people are standing up (and walking out) against the expectation of working longer hours without any extra pay. In contrast to the short-lived phenomenon of the Great Resignation, it remains to be seen whether the quiet quitting trend will become a more permanent movement that will bring about changes in the way people perceive work and labor practices. The eventual impact of quiet quitting may depend on whether workers can hold leverage over employers for long enough to embed some of these practices into the workplace. The economic benefits of quiet quitting The traditional view of quiet quitting states that it is bad for the economy, which makes sense on a surface level. When people become disengaged from their jobs, it can lead to decreased productivity and therefore lower economic growth. However, this view ignores the potential benefits of quiet quitting. When individuals withdraw from unnecessary tasks or projects that are not aligned with their job description or goals, they are able to redirect their energy and skills. This can lead to increased mastery over their role, heightened creativity, and more opportunity for innovation, which can ultimately benefit their organization and by extension the economy, even leading to the creation of new businesses or industries. When individuals quit tasks or unnecessary work projects, this gives them more space and time to develop their skills and pursue their passions. In other words, when individuals allocate their time and effort towards more significant endeavors, it can potentially result in the creation of fresh business ventures and inventive personal projects. This shift in focus has the potential to cultivate a thriving entrepreneurial culture, which can lead to increased national productivity, creativity, and innovation on the macro-level. Furthermore, quiet quitting can lead to increased happiness and well-being for workers, which can have positive economic effects. When individuals are happier and more fulfilled, they are more productive and perform better in their jobs. By letting go of unnecessary tasks and being more psychologically invested in their core responsibilities, employees could experience an improvement in performance. Balancing work and life improves mental health and wellbeing The World Health Organization acknowledges burnout as a work-related condition that manifests as feelings of depletion, exhaustion, cynicism, mental detachment from work, and reduced productivity. Burnout is a severe consequence of excessive work and can cause lasting physical, emotional, and mental health problems. Of course, overworking will lead to increased production levels which can be observed immediately in the short-run. However, in the long-run when employees suffer burnout, the impact of such a mental state is likely to cancel out any positive outcomes reaped in the short-run. Therefore, we can safely say that overworking is likely to cause a long-term decline in performance due to eventual burnout. Preventing employee burnout is extremely important for all organizations, because its repercussions can be destructive. Establishing a healthy working environment where both employers and employees embrace the concept of “quiet quitting” – or stated another way, where the work relationship is clearly defined and where overwork is discouraged – could cause major improvements in the workplace as well as our personal lives. With a mindset that is not driven by stress, work pressure, and unhealthy levels of overworking, employees would find themselves performing better and less likely to burn out. This would lead to increased innovation, economic growth, and better mental health and wellbeing. The benefits of improved work-life balance Quiet quitting aims to provide healthy boundaries between work and personal life, so that there is clearly delimited time for both. Studies have found that work-life balance is linked to better mental health overall. Some of the most prominent studies showing this relationship include the following: A study published in the International Journal of Environmental Research and Public Health in 2020 found that employees with better work-life balance reported lower levels of psychological distress and higher levels of life satisfaction (Shimazu, Schaufeli, Kamiyama, & Kawakami, 2020). A research paper published in the Journal of Applied Psychology in 2017 found that employees who had greater control over their work schedules and who were able to take time off when needed experienced less psychological strain and burnout (Hill, Hawkins, Ferris, & Weitzman, 2017). A study published in the Journal of Occupational Health Psychology in 2008 found that employees who perceived their work as interfering with their personal and family life experienced higher levels of emotional exhaustion and lower levels of job satisfaction (Greenhaus & Powell, 2006). Better work-life balance also involves disconnecting your self-worth from your job. This can be difficult because when work is your primary focus, it’s hard not to associate your value as a person with it. Yet, it’s important to realize that work failures or achievements do not necessarily define you. Identifying yourself so closely with work achievements or promotions can lead to increased levels of stress. People who rely on work for self-worth or fulfillment can often react to work stresses by anxiously overworking themselves into a burnout. But, when employees work less and engage in mandatory tasks only, work becomes much less pressuring and stress levels decline. As a result they will be able to think clearer, be more creative, be less distracted and perform better at work. When they go home, they will show up the next day well-rested and ready to put in more effort for better outcomes. Increased well-being is a worthy goal that also has economic benefits Employees who are happy tend to display higher levels of productivity and commitment in their work. Such positive emotions can also help reduce instances of distraction or disengagement. Additionally, when individuals experience happiness, they tend to exhibit greater sociability and willingness to build relationships with colleagues, which can contribute to their overall job satisfaction. By prioritizing their main task at hand, employees can avoid the negative effects of feeling like they are constantly competing with their peers, instead building these relationships. In fact, the desire for workplace friendships is ingrained in our basic human desire for a sense of belonging. This in turn can enhance loyalty towards the workplace and improve job performance, leading to greater productivity and higher profits. As a response to the "great resignation," quiet quitting has become a liberating choice for people who prioritize balance instead of overwork and burnout. By setting boundaries and not tying their self-worth to work productivity, workers are taking care of their well-being. Employers should see this as an opportunity to support their staff's overall well-being by encouraging a better work-life balance. This will communicate to employees that they are valued, leading to greater employee engagement, productivity, and loyalty – a win-win situation for everyone involved. New employer practices that embrace the concept of quiet quitting or other methods of healthy focus in the workplace could include anything from adopting a 4-day work week to incorporating mental and physical well-being practices, allowing flexibility in schedules, supporting remote work, agreeing to reasonable workloads, or supporting frequent breaks during the work day. The Bigger Picture: how quiet quitting can promote the UN’s SDGs Encouraging the notion of quiet quitting as a normalized, standard mentality in the workplace has the potential to boost national progress towards the achievement of the UN Sustainable Development Goals (SDGs). SDG 3: Good Health and Wellbeing Adopting the concept of quiet quitting empowers individuals to devote more attention and effort towards their dietary habits, fitness regime, relationships, hobbies, and interests, which collectively contribute to enhancing their overall wellness and leading a healthier lifestyle. SDG 5: Gender Equality Embracing quiet quitting could facilitate the achievement of goal five, which is gender equality. With the provision of reasonable workloads and flexible schedules, women can adjust their work hours according to their convenience and can balance their professional and personal lives more efficiently, resulting in better job performance. This is especially necessary for working mothers. Such flexibility prevents the forced choice between work and home, for both men and women. SDG 8: Decent Work and Economic Growth Quiet quitting has the potential to encourage more innovation in society, as discussed above. It is important to advocate for policies that prioritize the growth of productive activities, promote job creation, and foster innovation and entrepreneurship. These policies should also address labor market challenges and ensure development-oriented policies. References Greenhaus, J. H., & Powell, G. N. (2006). When work and family are allies: A theory of work-family enrichment. Academy of Management Review, 31(1), 72–92. https://doi.org/10.5465/amr.2006.19379625 Hill, E. J., Hawkins, A. J., Ferris, M., & Weitzman, M. (2017). Finding an extra day a week: The positive influence of perceived job flexibility on work and family life balance. Journal of Applied Psychology, 102(8), 1346–1364. https://doi.org/10.1037/apl0000225 Shimazu, A., Schaufeli, W. B., Kamiyama, K., & Kawakami, N. (2020). Work–life balance as a predictor of recovery experiences and well-being: A cross-sectional study. International Journal of Environmental Research and Public Health, 17(4), 1282. https://doi.org/10.3390/ijerph17041282 Header image credit: Racool_studio on Freepik.com.
In a world where we are constantly told to hustle, grind, and push ourselves to the limit, the idea of taking it easy can seem counterintuitive. However, there is a growing movement suggesting that doing only what’s necessary at work is the best thing we can do for ourselves and for the economy. This is known as the concept of "quiet quitting".
How will the development of AI affect the labor market?
It’s expected that AI will change the economy and the world, though few have answers as to how. News stories continue to be written as companies, governments, researchers, and students grapple with AI and learn how to adopt it or respond to it. In this article, we’ll explore this question from an economic standpoint, focusing on the human side of the economy: the labor market. How will AI affect people’s jobs and the future of work? How disruptive technologies generally affect the economy AI in this massively available and accessible form seems truly new and unique. But economically speaking, it could just be considered another advancement in technology that can improve our productivity. This scenario has been happening in our economies since the dawn of civilization. So, what economic impact do these advancements tend to have? Consider the classic Cobb-Douglas production function, shown below: \begin{equation*} \mathit{Y} = \mathit{A}\mathit{L}^{\alpha}\mathit{K}^{\beta} \end{equation*} In this equation, K stands for capital, L stands for labor, and A stands for “technological progress”. A is often glossed over in introductory courses, but is generally described as a “good thing”. When this factor increases, it means that even with the exact same inputs, the economy can produce more. In other words, technological advancement leaves room for Pareto improvements. The development of AI can be thought of as an increase in A. Everyone is theoretically made better off due to this increase in A; this is why economists typically consider technological progress to be a good thing. To see why, consider previous inventions that have changed our daily lives and made certain careers obsolete. One such example is the invention of the printing press. Before it was available, books had to be copied by hand, which professional scribes were hired to do. As books were hand-copied, they were quite scarce, and the cost of books was much higher (relatively speaking) than they are today. Undoubtedly, the invention of the printing press was a boon for society. It allowed a greater quantity and wider range of books to be printed, which enabled more people to become literate, and for those who were literate to make use of their literacy more often. It also caused scribe careers to become obsolete. But nobody would argue that we should re-introduce those jobs, and stop typing or printing. AI tools could have similarly beneficial effects as other disruptive technologies like the printing press did in the past. It can potentially help us create things much faster and more cheaply, resulting in a productivity boom. The hidden cost of progress But, innovation has a cost that the simple Cobb-Douglas model of the economy does not capture. As mentioned, professional scribes barely exist today due to technological progress. But, once books were easier to produce and literacy was more widespread, becoming an author became accessible and doable. This process of new technology creating new opportunities while making old jobs obsolete is known as “creative destruction” in economics. This is one of the main reasons why people may be hesitant about a new technology’s impact on the economy. Nobody wants to become unemployed and (temporarily) lose their source of income, even if it means that society overall is becoming more efficient and productive. Another valid concern is the ability of workers to find new employment. This is especially concerning for people who were working in a now-obsolete job. Finding new work takes time and might require retraining, which can be costly. Workers also may have liked their now-obsolete jobs, and might not enjoy being forced to find a new career. Some workers close to retirement age might struggle to find new employment at all. <11an>limit:3;categories:Jobs</11an> The impact of artificial intelligence on the labor market Some fears of losing jobs to AI have already proved valid. In the first half of 2023, AI quickly started to impact the labor market as businesses looked to it as a revolutionary cost-cutting tool. For example, IBM announced that up to 7,800 jobs could be replaced by AI, and instituted a hiring freeze on those positions, presumably until AI is advanced enough to eliminate those jobs entirely. Other companies, including DropBox and Buzzfeed, announced job cuts. DropBox alluded to AI, citing “developing technology” as one reason for its job cuts, while Buzzfeed explicitly cited AI as one of the reasons they were letting workers go. In a similar vein, Wendy’s announced a partnership with Google to replace human employees with an AI chatbot for its drive-through ordering system. The system is expected to begin launching in the summer of 2023 after being trained sufficiently. In response to situations like these, some workers are fighting to gain assurances that their jobs won’t be replaced by AI. A major writer’s strike enacted by the Writers Guild of America, the union that oversees writers across most of Hollywood, began in early May 2023. Interestingly, the writers did not demand for AI to be banned completely. Rather, they began to strike for better working conditions in general, including the promise that humans would be prioritized in the creative process. The Guild made it clear that AI can be a useful aid in the writer’s room, but should not be seen as a replacement for human professionals. As of this writing, negotiations are ongoing. Some firms have banned the use of AI, for marketing or for safety It’s clear that some firms aim to use AI to cut costs, increase productivity, and even replace workers. At the same time, some companies see value in promoting their lack of AI usage – or are holding off for safety reasons. For example, the tabletop game company Paizo made waves when it announced a ban on the usage of AI-generated content in all of its products. Paizo employs many writers and artists – which fulfill two functions that AI is able to replicate. Paizo’s announcement was seen as a good thing by fans and hobbyists, and has helped to drive record interest in their products in early 2023. Typically, the adoption of new technology is needed to remain competitive. It’s possible that Paizo’s competitors end up utilizing AI to produce quality content much faster and cheaper than Paizo can, eventually forcing them to adopt AI or driving them out of business. But, if having 100% human-made content becomes important for product differentiation, or as a signal of the company's values – similar to the fair trade label in chocolate – then companies like Paizo could carve a niche for themselves and remain competitive even without utilizing AI. Other firms have moved to ban the usage of AI for data privacy or security concerns. Because these tools are hosted by other companies and connected to the Internet, sharing sensitive information with them could pose a security risk. Samsung is an example of this, as the firm banned AI on its company devices after employees leaked sensitive information to an AI tool. In the future, firms like Samsung could opt to develop their own internal AI tool for their employees to use. This would allow employees the benefits of an AI tool without running the risk of sensitive company information leaking. But developing and training a useful AI takes time, development expertise, and training data, which can be expensive. And, inference costs mean that using an AI tool can be expensive, too – one estimate puts the daily cost of running ChatGPT at about $700,000. The creative side of creative destruction: new income streams from Internet text AI must be trained on data. For these large language models (LLMs) specifically, this usually involves massive volumes of text taken from the Internet. Normally this text doesn’t belong to the companies developing these AI tools. Consequently, some large websites like StackOverflow and Reddit have made plans to start charging AI developers for using their data, which so far they’ve been doing without paying for it. These types of sites are also beginning to charge for access to their data for future developers, which could become a new income stream for these companies. The CEO of Stack Overflow, Prashanth Chandrasekar, said it well himself: “Community platforms that fuel LLMs absolutely should be compensated for their contributions so that companies like us can reinvest back into our communities to continue to make them thrive”1. Indeed, this new paradigm of charging for text data could even create jobs to carefully build and maintain forums (or other content databases) that would be sold to developers as training data. In this way, human-only online spaces could become an important and lucrative new aspect of the digital economy. Certainly, other new services and careers will appear due to the widespread usage of AI – such as possible AI detection tools and “prompt engineer” job positions. There is already some disruption in the labor market due to AI, and there’s likely to be more coming. As with every instance of creative destruction, there will be some growing pains while society and the economy is restructured to take advantage of the new technology. But, it’s also highly likely that new careers will emerge as the dust settles. On the way, people will claim that artificial intelligence is going to impact the economy in transformative ways, while others will view it as a threat to their livelihoods. The true answer likely lies somewhere in the middle, though only time will tell. Notes 1: https://gizmodo.com/stack-overflow-charging-ai-companies-for-training-data-1850362500
Artificial intelligence appears to be the next truly disruptive technology poised to rock our global economy. In December 2022, ChatGPT-3 made headlines. It represented a leap forward in the capabilities of generative AI technology, pushing conversations about this new tool into the mainstream as people began to question how ChatGPT will affect the economy.
Econometrics is the application of statistical rigor to economics that allows economists to test economic theory. It is the backbone of modern economic research; any empirical paper that lacked solid econometric reasoning (and preferably repeatable, data-based analysis) would probably not be taken seriously. While it’s possible to theorize and contribute to economics through the development of new theoretical models (especially by introducing science from related fields, like psychology), most serious economists must be comfortable with basic econometrics. Enter Dr. Wooldridge’s research and his seminal text, Introductory Econometrics: A Modern Approach, first published in 1999 and now with over 6 editions, still widely used around the world. Dr. Wooldridge is a prolific researcher who has published more than forty articles in top economics journals and has helped advance econometric theory significantly. Chances are, if you’re a serious student of economics, you’ll end up using his material in some of your courses. Dr. Wooldridge’s contributions to advancing econometric rigor Dr. Wooldridge’s main research focus is in microeconometrics, a sub-field of econometrics that works with individual-level data. He specializes in the study of panel and cross-sectional data, researching and promoting the best econometric methods for researchers to use with these types of datasets. This work is important. One of the cornerstones of the scientific method is the use of repeatable experiments that can be measured. Unfortunately, in economics, it’s very difficult to conduct a repeatable experiment. After all, we study the decisions that people make with limited resources, and it would be impossible to dictate people’s lives just to study their outcomes. Therefore, in economics, historical data is used quite often (though randomized controlled trials have become increasingly common, thanks to the work of certain economists). Because of this, economists often do not have control over how the data was collected, or what specific measurements were used to record it. This makes measurement, and statistical testing, a complicated and precarious process for many researchers. For these reasons, it is often misleading or impossible to use the most straightforward methods of statistical analysis when studying economic data. Further, due to the types of analyses economists like to conduct, there are frequently situations where economists must employ models that violate some of the classic linear regression model assumptions. Therefore, it’s important to have pioneers in the econometric space who can devise methods for properly studying atypical datasets, and techniques for accurately conducting statistical tests in these atypical settings. Further, these pioneers must be adept at teaching others to do the same. This empowers other economics researchers to focus on their actual specialties and research questions, while enabling them to produce the most accurate results possible from their work. This is exactly what Dr. Wooldridge has been able to do over the course of his career. His work has been cited over 130,000 times1 because it has helped form the empirical backbone for many other studies. Without someone to break new ground and pioneer a new, useful econometric approach, some types of analyses are just not possible. Dr. Wooldridge’s research has been distilled into actionable findings that other economists can make use of in their research. Its importance cannot be overstated. Dr. Wooldridge’s professional achievements Jeffrey M. Wooldridge is University Distinguished Professor of Economics at Michigan State University, where he has been teaching since 1991. He is a fellow of multiple prestigious societies, including the Econometric Society and the Journal of Econometrics. He is additionally a research fellow at IZA. Besides his most famous work, (Introductory Econometrics: A Modern Approach), he has also authored another important text for economists, titled Econometric Analysis of Cross Section and Panel Data. Dr. Wooldridge has served on the editorial boards of several journals, including the Journal of Economic Literature, the Journal of Business and Economic Statistics, the Review of Economics and Statistics, and the Journal of Econometrics. He is currently an editor for the Stata Journal. He has also been co-editor of Econometric Theory, an econometrics co-editor of Economics Letters. He previously served as an editor for the Journal of Business and Economic Statistics. In addition to more than forty articles published in internationally recognized journals, he has written several book chapters. These include articles in the Handbook of Econometrics and the Handbook of Applied Econometrics. Dr. Wooldridge received his Ph.D. in economics in 1986 from the University of California, San Diego. Notes 1: Dr. Wooldridge’s work has been cited 138,755 times according to Google Scholar as of May 10, 2023. Header image credit: Global Labor Organization https://glabor.org/glo-recommends-take-a-microeconometrics-class-with-professor-jeffrey-m-wooldridge-at-kent-university-deadline-is-end-of-april/. References http://econ.msu.edu/faculty/wooldridge/jmwvita.pdf https://www.iza.org/de/person/4582/jeffrey-m-wooldridge
Students often learn about important figures in economics only briefly and in passing, yet the content taught in economics courses often comes from brilliant economists such as these.
A quick guide to math symbols in economics
As such, economists need to have some quantitative skills. The more comfortable they are with math and econometrics, the better for their research and career opportunities. But, economists are not mathematicians. So, when students of economics take Bachelor’s or Master’s courses while studying for their economics degree, they might be presented with symbol-heavy lecture notes. Without understanding these symbols, students will probably struggle to read them, leaving their meaning unclear. This article aims to fill that gap. What are the most commonly used math symbols in economics, and what do they mean? Symbols and definitions Math symbols \(\pm\) - this symbol means “plus or minus”. It’s most often used when describing an interval of some sort, such as a confidence interval. \(\preceq\) - this symbol, and others like it, are used often in economics to describe preference relations. Preferences are the building blocks of the demand curve. This symbol is seldom used outside of microeconomics courses that specifically focus on preferences. \(\propto\) - this symbol means that the variable on the left side is proportional to the variable on the right side. \(\sim\) - this symbol means “similar to”. \(\approx\) - this symbol means “approximately”, which means something is almost, but not quite, equal to something else. \(\parallel\) - parallel. In economics, this is used most often in econometrics when describing how things relate to each other geometrically. \(\perp\) - this means perpendicular or “orthogonal”. Perpendicular means two things intersect at a 90 degree angle in geometry. In econometrics, orthogonal means that one variable has zero power to explain another variable, because they have a covariance equal to zero. \(\in\) - this means “in”, that a variable on the left side is contained within a variable, group, or concept on the right side. It can be reversed to mean the opposite. For example, often in economics, a theory will describe which values of x are possible. If x can only take on real number values, the description might start with x \(\in\) \(\mathbb{R}\). This means that x can only be a real number, because it is “in” the set of \(\mathbb{R}\). \(\otimes\) - this symbol is used to describe the Kronecker product, which is a matrix algebra concept that comes up occasionally in econometrics. \(\partial\) means “partial”, and is used to denote a partial derivative. IN is often used to denote the identity matrix with dimension N; it’s used frequently in statistics and econometrics. \(\cdot\) this symbol is placed above a variable to signify the derivative with respect to time of that variable. This symbol is commonly used in macroeconomics, but seldom outside of that context. Greek letters These are often used to denote variables, but some carry special meaning because of how often they’ve been used in certain contexts. \(\alpha\) - the letter alpha, often used with Cobb-Douglas functions to denote the exponents. Also used when discussing p-values in hypothesis testing; the “alpha” level sets the number that you compare the hypothesis test’s result to, in order to determine if the result is statistically significant (such as 0.05 for 5% significance, which is often the default). \(\beta\) - the letter beta, also used as an exponent in Cobb-Douglas functions. But, it’s most famously used when describing regression formulae. In that context, this letter usually has a subscript and is the shorthand way of saying “the regression coefficient on the variable it’s being multiplied with”. \(\epsilon\) - the letter epsilon. This letter is also commonly used in regression analysis, and usually denotes the error term of the regression. Many introductory econometrics classes, and any other course that showcases regression analysis, will make frequent use of this symbol. Many of the assumptions that allow economists to justify using a regression model involve statements made about the error term. \(\delta\) - the letter delta. This symbol is used often to denote the change in a variable, or depreciation in macroeconomics. It’s often confused with the symbol for partial derivatives, which looks very similar! \(\lambda\) - the letter lambda. It is used most often when solving constrained optimization problems using the Lagrangian method; in this case it stands for the shadow price of the budget constraint. This letter will be seen very often by microeconomics students. \(\mu\) - the letter mu. This letter is used often in statistics and usually denotes the mean, or average, of something. \(\rho\) - the letter rho. Often used to indicate the correlation coefficient between two variables. \(\Sigma\) - the capital letter sigma. Used frequently to denote the sum of things. \(\sigma\) - the lower case sigma. Used often in regression analysis and statistics to denote standard deviation; when squared, it is the variance of the subject in question. \(\Phi\) - the capital letter phi. Usually used to denote a probability distribution in statistics, most commonly the cumulative distribution function (cdf) of the normal distribution. \(\phi\) - the lower case phi. Often used to denote the probability distribution function (pdf) of the normal distribution in statistics. But, this letter is frequently used outside of this context too, unlike the capital version described above. \(\chi\) - the letter chi. Used in statistics to denote the chi-squared distribution, which is a probability distribution that is used a lot in regression analysis. \(\Omega\) - the capital letter omega. Used often in econometrics to be the symbol for a matrix. The following letters usually don’t carry special meaning on their own, but are often used in economics regardless. They are commonly used as placeholders for a variable when discussing a theory or equation. \(\gamma\) - the letter gamma. \(\eta\) - the letter eta. \(\kappa\) - the letter kappa. \(\nu\) - the letter nu. \(\tau\) - the letter tau. \(\upsilon\) - the letter upsilon. \(\Psi\) - the capital letter psi. \(\psi\) - the lower case letter psi. \(\omega\) - the lower case letter omega. Other statistics symbols The following symbols are often used in economic statistics contexts. Note that the Greek letters above contain many symbols used in these contexts as well. | means “given that” in a statistics sense, i.e., X | Y = 2 means “X given the fact that Y equals 2”. \(\mathbb{E}\) means “the expectation of”. Typically there is a defined variable, matrix, etc. placed in brackets next to it (for example, X); then, this means the expectation, or expected value, of X. This symbol is used extremely often in statistics. \(\mathbb{V}\) means “the variance of”. It’s used in the same way as the expectation symbol above, so when something is placed in brackets next to this, it means the variance of that variable, matrix, etc. Not to be confused with \(\sigma\)2, which stands for a specific number. \(\sigma\)2 is the symbol for the variance of a variable, matrix, etc. This stands for the actual number that is the variance of something. \(\overline{X}\): the bar above a variable denotes the average. This symbol is used very often in economic formulae, for example when describing the sum of least squares. Set theory symbols Set theory is used to describe how groups of things relate to one another. They’re similar to a Venn diagram, but in the language of math. \(\subset\) - this symbol shows that the variable or group on the left side of it is a subset of (included in) the group on the right side of it. With a slash through it, it means the opposite. \(\subseteq\) - the same as the above symbol, except that the subset it describes can also be equal to the variable or group on the right side. It does not have to be completely contained within the second group. \(\supset\) - this symbol denotes a superset, which is the opposite of a subset. It means that the group on the left side of this symbol contains the group on the right side. \(\cap\) - this is the symbol for the intersection of two sets, or the things they both contain that are the same. \(\cup\) - this is the symbol for the union of two sets, or everything that is contained in at least one of the sets. \(\emptyset\) - this is the “empty set” symbol, which is simply a set that contains nothing. Sets of numbers The following symbols are still technically sets as they describe groups of numbers, like “rational numbers” or “natural numbers”. These are used very often in economic formulae even when other set symbols might not appear. \(\mathbb{N}\) is the symbol for natural numbers. \(\mathbb{Z}\) is the symbol for the set including all integers. \(\mathbb{Q}\) is the symbol for the set of all rational numbers. \(\mathbb{R}\) is the symbol for the set of all real numbers. Other useful symbols \(\exists\) means “there exists at least one”. It’s commonly seen in proofs, which tend to be used in econometrics- or statistics-heavy courses. \(\exists!\) is a variation on the symbol above that means “there exists one and only one”. \(\forall\) means “for all”, usually in the context of stating some truth in an econometric context, i.e., stating that a particular equation is true for all i in some set of observed values N. \(\implies\) means “implies”; the function, formula, or variable on the left side implies some relationship written on the right side. \(\iff\) means “if and only if”. Reading economic formulae Now that the commonly used symbols have been introduced, we can use them to read and interpret an economic formula. The below example is the Goldsmith equation, used in macroeconomics to describe the growth of capital stock over time: \begin{equation*} \dot{K_t} = \mathit{I_t}-\delta\mathit{K_t} = \mathit{s}F(\mathit{K_t},\mathit{A_t},\mathit{L_t}) - \delta\mathit{K_t} \end{equation*} The first variable in this formula stands for the derivative of capital with respect to time, signified by the dot above the Kt. Recall from the list of math symbols above that the dot means the derivative of something with respect to time. This is equivalent to the investment (which here is defined as It) at a point in time minus the depreciation times the capital stock at a point in time. Recall that the symbol \(\delta\) from above is often used to denote depreciation. Then, on the far right-hand side, it is broken down further. It’s multiplied by s, which stands for the savings rate. This is multiplied by a function of capital, labor, and technological growth. The function’s exact form is not defined for us yet, so it’s simply written as F(Kt,At,Lt), which is common practice in math. \begin{equation*} \mathit{YED}_{A} = \frac{\Delta\mathit{q}_{A}}{\Delta\mathit{Y}} = \frac{\frac{\partial{q}_{A}}{\mathit{q}_{A}}}{\frac{\partial{Y}}{Y}} \end{equation*} This equation, meanwhile, describes the income elasticity of demand with respect to good A. It tells us exactly what this elasticity is and how to calculate it. The income elasticity of demand YEDA is equal to the change in the quantity demanded divided by the change in income. \begin{equation*} \mathbb{E}[X] = \mathbb{E}[\mathbb{E}[X|Y]] \end{equation*} This formula is a foundational theorem in econometrics, known as the Law of Iterated Expectations. Recall that the \(\mathbb{E}\) symbol means “expectation”. This formula states the following in mathematical shorthand. Our expectation of X in general is equal to our expectation of the value of X that is expected given some value that the variable Y could take on. In other words, we have some general idea of what X should be over the whole range of possible Y values (which have not been defined yet). This expectation is the same as what we generally expect X to be. In more precise statistical language, this formula means that the expected value of X is equal to the expectation of the conditional expectation of X given Y. It took many words to describe what a simple formula could convey with only a few symbols. Clearly, using these symbols can help economists communicate ideas much more effectively than by just using words! Header Image Credit: geralt on Pixabay (free for use under the Pixabay Content License)
Studying economic theories and methods requires an understanding of mathematical symbols. These symbols are used as shorthand to describe theoretical concepts in economics textbooks, theories, and research papers.
What degree do I need to succeed as an economist?
Generally speaking, there are two career paths one can pursue with an economics degree. Academic economists work for universities and usually combine research with teaching responsibilities. Non-academic economists (sometimes referred to as economists in industry, or “industry economists”) are hired by a variety of employers, including financial institutions, think tanks, NGOs, governments, and more. Some of these economists conduct research much like their academic counterparts, while others have jobs that are far from academia. Industry roles can be further subdivided into public sector (i.e., government) or private sector (i.e., an investment bank) positions. We have previously covered some of the key differences between these two paths beyond what is obvious on the surface. If you’re curious about the difference in the actual work between these different types of economists, check out the linked article. It offers advice written by an economist who has worked in a think tank and later returned to academia for her economics PhD: “Policy or academic economist: which should I become?”. How many years of schooling should I complete to become an economist? As an economist, it’s possible to find an industry job with just a Bachelor’s degree, but these are almost entirely entry-level roles. This can make good sense for a student who recently graduated with a Bachelor’s in economics and wants to work for a few years before pursuing more education. However, a majority of economists have a PhD in economics, and an overwhelming majority have at least a Master’s degree. According to our Salary Survey results in 2022, fully 92% of economists had either a Master’s degree or a PhD (61.3% had PhDs and 30.9% had a Master’s). Only 6.3% of economists who responded had just a Bachelor’s degree. A career as an academic economist often requires a PhD Almost every successful academic economist has a PhD. It would be very difficult to gain academic employment without one, especially since you’d likely be competing with economics PhDs for most positions at universities. According to the Economist, “Nabbing a top academic job in America requires obtaining a PhD, preferably from a good university”1. Full professor of economics positions (which pay very highly) often require not just a PhD, but work experience and research credentials. More junior academic positions may not explicitly require a PhD, but are usually inundated with applications from young economists who have recently completed theirs. It can be difficult to compete without equivalent academic qualifications, or lots of relevant work experience. A Master’s degree at minimum is suggested for a career as an industry economist Even outside of academia, to truly advance in your career as an economist, a Master’s degree or a PhD are very helpful. A Master’s degree in economics should be considered a minimum educational requirement for most economist jobs. As the US Bureau of Labor Statistics states, “Economists typically need at least a master’s degree to enter the occupation”2. This appears to be broadly true across regions, not just in the United States. Many senior economist positions are only open to those who have a PhD. Further, perusing job postings for economists will reveal a whole host of opportunities for economists with a PhD and a specialization in a subfield. This is because for many industry roles, organizations have a very specific need for an economist and the future hire must have relevant experience. For example, NGOs that compete for development projects often do so via a “request for proposal” or RFP process, where the funding government solicits RFP responses and selects the best offer. These competing NGOs therefore often need an economist with a PhD and proven experience in that project’s specific topic area (i.e., a certain region or type of infrastructure) in order to successfully win the contract from a government agency. This is because part of the NGO’s pitch is the quality of economist staff who would be assigned to the project. Becoming an economist without an economics degree Of course, not everyone recognized as a brilliant economist was trained as such. In fact, some of the most famous economists – like John Nash, winner of the Nobel Prize in economics in 1994 – studied other fields first. Nash was a mathematician by training. Degrees from other fields can allow someone to shift their career into economics, but this will often limit the economics subdiscipline they can work in. As with John Nash, a successful mathematician can quite certainly become an econometrician or similarly quantitatively-focused economist with their background. Statistics, political science, and finance are other examples of fields that allow one to pivot into an economics career. But, these professionals will have the highest chance of success by working in related subdisciplines – such as policy analysis or financial economics. This, however, is not easy, nor is it a standard method to becoming an economist. If you are interested in economics specifically, it’s better to decide on a specialization and pursue a relevant degree program in economics based on those interests. The value of an economics PhD After reading all of this, the value of an economics PhD might seem important, but difficult to quantify. Not so. Our Salary Survey allows us to estimate the return on a PhD in economics; it turns out that these economists enjoy a much higher average salary than Master’s degree economists. Last year, PhD economists earned 50% more on average than economists with a Master’s degree, globally. Clearly, it’s an investment that pays off. Naturally, this figure varies by region. The graph included below shows the increase in average pay for an economist with a PhD compared to one with only a Master’s degree in each region. Average pay for an economist with a PhD compared to one with a Master’s, by region There are many career options to pursue with a degree in economics. When planning yours, we highly recommend that you search for economics jobs that interest you. Learn their requirements and check the qualifications of professionals who are currently employed in those jobs. Doing this will help you learn what education, skills, and experiences you still need in order to be a competitive candidate for those positions. Then, you can take economics courses, get your next degree, or attend conferences to acquire the skills and experience you need. Whatever your chosen path, you can find resources on INOMICS to help you achieve your goals. We wish you the best of luck on your career journey! References 1. https://www.economist.com/finance-and-economics/2020/08/08/what-it-takes-to-become-an-academic-economist-is-changing 2. https://www.bls.gov/ooh/life-physical-and-social-science/economists.htm Header image credit: greymatters on Pixabay (free for use under the Pixabay Content License)
It might be unclear to new students of economics how much schooling is necessary to succeed as an economist. For some careers, a Bachelor’s degree is sufficient. In others, a PhD is a near-necessity. This article will discuss how much education successful economists typically have.
The INOMICS Questionnaire: Fratzscher vs. Ditzen
Jan Ditzen is an Assistant Professor (RTD-A) in Econometrics at the Free University of Bozen-Bolzano, in Bolzano, Italy, where he was previously a postdoc. Since 2021 he is serving as Co-Editor/Digital editor of the economics journal Spatial Economic Analysis, responsible for the Replication Studies Section among other responsibilities. From 2017 to 2020 he was a Research Associate at the Centre for Energy Economics Research and Policy (CEERP) at Heriot-Watt University, where he was internally responsible for assisting BP plc with the BP Energy Outlook, and one of the fuel leads for the BP Statistical Review of World Energy. He obtained a PhD from Heriot-Watt University, a Master in Economics from Hamburg University and a Bachelor in Economics from Mannheim University. Dr. Ditzen’s research interests are in the field of Applied Econometrics with a focus on Panel-Time Series, Cross-Sectional Dependence, Spatial Econometrics, and Growth Empirics. He has also an interest in Simulation Studies and the implementation of econometric methods into statistical software. Marcel Fratzscher: What is your favourite place on earth? Jan Ditzen: Definitely a place out in the hills or mountains. My favourite two would be Grimentz in the Swiss mountains. It is a beautiful place with amazing views and has many good and happy memories. The second one is a remote cabin in the Norwegian mountains. It is a very peaceful and quiet place. MF: Outside of economics, what occupation would you choose if you could be absolutely anything? JD: That's a hard question, there are so many exciting and interesting occupations. An alternative would have been engineering; it must be great to see one’s projects in real life. I usually joke that if I have enough of academia, I plan to become a shepherd in the Alps or a mountain guide. MF: What is the virtue you appreciate the most? JD: Honesty and being straight forward without too many words. MF: Your all-time favourite figure in economics? JD: As an econometrician I (have to) name one as well: Hashem Pesaran. His work on panel data and time series econometrics is unprecedented. Additionally he has some important work on empirical finance and macro models. Beyond that his influence on the profession, for example in the form of his involvement in the International Association for Applied Econometrics, will be lasting. MF: Your #1 economics blog? JD: Surprisingly, I am not following many blogs, but I enjoy reading Daniel L. Millimet's blog "How the (Econometrics) Sausage is Made". Daniel offers easy to read articles on econometrics and related current topics. What I enjoy is that his blog connects well to recent contributions or debates in the literature and outside of it. MF: Your ideal student? JD: A student who asks the "right" questions. The "right" questions are those which make you rethink the material you teach, or even give you ideas for new research. MF: What should be done to address a gender bias in research in economics? JD: I am a fairly junior researcher, so my influence in hiring and strategic decisions is relatively minor. However I think as a profession we need to be more inclusive. In particular we need to motivate female students to pursue PhDs in areas which are male dominated. Too often I end up in conference sessions which consist almost exclusively of male presenters. MF: What is the most misguided research agenda in economics? JD: It is not really a research agenda, but we need to improve on our empirical work. At the end of the day economics is a social science and empirics is the vehicle to validate economic theories. Therefore we have to take it very seriously. From my perspective there are currently two weaknesses. The first one is a technology gap between empirics and econometric theory. Academic papers should try to use the latest econometric methods because those are either solving issues or shortcomings in existing methods, or are a better fit for a specific problem. On the other hand, there are many elegant and beautiful econometric methods which will hardly be used in applied work. The reason for this gap is that many methods don't find their way into statistical software, which manifests a disconnect between the two sides. For econometric theorists, it is often not interesting to follow up on the implementation of their methods into mainstream software. Practitioners often do not cite software or packages, which removes incentives for the original authors of the methods or 3rd parties to invest time into transforming econometric methods into statistical software- from my own experience I know how long developing a well working package takes. This leads to the next weakness: reproducibility of existing studies. The data collection and processing, and production of results are too intransparent in too many papers. If results cannot be validated and reproduced, how can we be sure that their conclusions are sound? Luckily journals have started putting more effort into this. The Journal of Applied Econometrics or the American Economic Association are pioneers, and the Royal Economic Society is currently looking for a data manager. MF: What is the most promising current research field or issue in economics? JD: There is the saying that "Data is the new oil" and we economists know how to handle data and draw conclusions from it. Thus I think there is a lot to learn from the combination of machine learning, big data and economics. There are still a lot of gaps in the theoretical literature and the topics only slowly find their way into more general questions and journals. Using data in the right way can improve the lives of many humans and our planet. Related to this, the use of data itself for a society or economy is also an under-researched topic in economics. MF: Where does economic research have the most influence on policy-making? JD: Certainly monetary economics and central banking. There is also a large influence of development economics and of course competition economics. MF: On what issues should policy listen more to economists? JD: To be honest, this is a hard question. Out of my head, there are a lot of issues from different fields. In general I believe policy should listen more to science. With respect to economics, outcomes in economics can be driven by the author's perception, or even ideology. This can be a problem when it comes to funded research activities, especially done by some research institutes. I think a big issue is that policy makers need to understand better from whom the research comes, and what are the background and limitations of the research. Science is complicated and there is no simple answer. As an econometrician, I would hope for better openness and quality of data. Data can inform in so many ways, but before that, it needs to be collected, processed and analyzed. A slightly German-centric view: There was a recent initiative by German economists for an improvement on data quality and accessibility in Germany which I hope policy makers will follow. MF: What is your career advice to a young economics researcher? JD: Be curious and don't be shy to ask questions, no matter about what or to whom. Follow your own interest and instincts, even if it might not produce the greatest outcome. Finally, don't forget your private life, the persons and activities you love and enjoy.
In the INOMICS interview series, Prof. Dr. Marcel Fratzscher asks economists questions about their field, their opinions on economics, some of their favorite things, and more. Today we took the chance to interview Dr. Jan Ditzen, an econometrician with a robust research presence. The interview, named Fratzscher vs. Ditzen (as is tradition), enlightens us on the contributions of Hashem Pesaran, the beauty of mountain scenery, details about econometrics and why its rigor is important for economics, and more.