Briana Grubb

Professor Gabriel Kahn

JOUR 469

October 11, 2017

Education: A Catalyst in Gender Pay Gap

 

In President Barack Obama’s 2015 State of the Union Address, he stated that women “make 77 cents for every dollar a man earns.” If a woman had a dollar, or even 77 cents, for every time she heard that statistic, it would cover lunch for a week. While this statistic, a ratio of two medians for full-time, full-year workers, can be problematic in that it doesn’t account for pay for the same work, it is true that a gender pay gap still exists in the United States; the female-to-male earnings ratio in 2015 was only 0.80 (U.S. Census Bureau).

Determining the causes of the gender pay gap is not a simple task. Communication surrounding the disparity is plagued by inaccuracies, as evident in Obama’s SOTU. Media coverage tends to say that the gap is caused by discrimination. Claudia Goldin, Professor of Economics at Harvard University, explains that while this was once the case, it is no longer a significant cause. She also reasons that another popular argument, categorical differences such as competitiveness and negotiation skills, doesn’t go the full degree in explaining the pay gap either. When featured on the Freakonomics podcast “The True Story of the Gender Pay Gap,” she deemed that the main reason for disparity is the high cost of temporal flexibility, valued more by women than men.

Temporal flexibility is “the variation in the number of hours worked and the timing of the work” (Oxford Reference).  Women value this flexibility so highly because they disproportionately have caregiving obligations—watching the kids, looking after their parents, assisting sick family members, etc.—which require them to work differently. It is important to note that not all women desire this temporal flexibility. In fact, the National Longitudinal Survey of Youth found that in 2006, women without children or spouses earned 96 cents for every dollar a man earned. The gap is virtually nonexistent between men and women who place similar amounts of importance on temporal flexibility. But since many other women disproportionately dedicate time to caregiving without compensation, they are willing to pay the high costs for flexibility of hours scheduled and worked.

This high price that women pay is reflected in their salaries. Glassdoor reports that the top five jobs in which women earn less than men are the following: computer programmer, chef, dentist, c-suite, and psychologist, all of which have at least a 27.2% base pay difference. The costs of temporal flexibility in these types of jobs are the highest because they are so specialized. The workers aren’t substitutable, so the handoffs are costlier. These handoff costs are reciprocated to costly workers, who work fewer or their own hours and thus cause more handoffs.

When women enter these types of careers, they are initially paid similar wages to their male counterparts. However, when they begin to have children, or start caring for someone else, they can no longer adhere to the requested hours set by their employers. Since they cannot devote all of the hours needed by their clients to them, they don’t receive raises, aren’t made partners, and can’t grow their careers. Women work less employer-requested hours and consequently notice negative effects on their salaries. The high cost of temporal flexibility is a partial cause of vertical segregation, defined by Stanford University’s Topic Report as “the overrepresentation of a clearly identifiable group of workers in occupations or sectors at the top of an ordering based on desirable attributes.” In this case, men are overrepresented as c-suite workers, dentists, etc. because they possess a desirable trait—a low value on temporal flexibility.

The difference in the value of temporal flexibility by gender also influences horizontal segregation, “the concentration of men and women in professions or sectors of economic activity” (Stanford).  In choosing occupations, men tend to choose sectors where levels of responsibility are high. The UNC Population Center published North Carolina’s largest jobs by sex, and men’s were drivers, managers, supervisors, laborers, and salespersons. The majority of these do not allow for flexibility in work hours, an adverse effect of requiring lots of responsibility. Inversely, many women go into careers that are compatible with their family lives. In North Carolina these were elementary school teachers, nurses, secretaries, and health aides. These types of occupations offer more part time employment opportunities and have smaller penalties for career pauses, so women gravitate toward them.

There is a bright side though! In 2012, Pew found in its analysis of the U.S. Census Bureau data that the number of women enrolled in college outnumbered men by 11%, (See Appendix A). And in September 2017, the unemployment rate of women ages 16 and up was higher than men’s of the same age, as reported by the Bureau of Labor Statistics. Female earnings increased 2.7% from 2014-2015, while men’s only increased 1.5%. Hence, the gender pay gap is shrinking. Hannah Rosin, in her Atlantic feature, “The End of Men,” argues that economic success is shifting away from being determined by attributes typical of men, e.g. physical strength and stamina. More women are entering the work force, and thus many new jobs are being created, replacing the domestic work women used to do for free. The typical working wife earns on average 42.2% of the household annual income, and four out of ten mothers are now the primary moneymakers in their families. Wage gaps are shrinking for these ideologically normal women who have traditional families and are of high socio-economic statuses. But how can the United States shrink the gender pay gap for all of its women?

An area with huge potential to decrease the gender pay gap for everyone is U.S. school systems. Primary education is an enormous hindrance on working parents, especially in the case of mothers who disproportionately handle childcare. It’s also a huge handicap for working single-mothers and other non-traditional working caregivers. Primary education reforms can reduce the amount of temporal flexibility that working women need.

Take for example Germany, which ranked 13^th best in global gender pay in 2016 (the U.S. ranked 45^th out of 144 countries). Kerri Shigo, former Senior Marketing Manager at Microsoft, moved to Munich with her husband and four children in 2008. Shigo had previously worked part-time at Microsoft to take care of her children. Upon moving to Germany, she took a long-term break from working. In conversation, Shigo expressed that she regretted quitting work for the years that she lived abroad. A large factor that led to this regret was the pre- and primary-schooling in Germany. Her youngest child attended kindergarten, Germany’s version of pubic preschool, from age three to six. The kindergarten school week ran Monday through Friday, and days lasted from 8:00 am until 4:00 pm. Kindergarten school days are set-up so that mothers who need to drop-off and pick-up their children can still work a full eight-hour workday. Another benefit of the German school system is its calendar year, which runs on a somewhat year-round schedule; students are in class for two months, then they have a break that alternates between one and two weeks. Working mothers don’t have to worry about arranging flexibility of timing at work to care for their children during a lengthy summer vacation. Instead, their holidays align more closely with their children’s, so they can use their paid vacation for the other breaks.

Germany’s public school system is supportive of reducing the amount of temporal flexibility that working moms need, effectively contributing to its smaller gender pay gap. It would be beneficial for the United States to reform its education system, borrowing from some of Germany’s ways. Lowering the age in which children start school would allow working-mothers to return to their jobs after childbirth earlier, if they choose to do so. Shifting the school day to more accurately reflect the work day could allow women to work on their companies’ hours instead of their own. Lastly, reforming scheduling of the school year to eliminate a lengthy summer break and instead have shorter breaks more reflective of the holidays would let mothers better align their paid time off with their children’s breaks.

Education is merely one route to take in diminishing the U.S. gender pay gap. There are several other approaches and combinations of approaches that would also be effective. What is important is that the causes of the disaprity become more widely known, so that more action can be taken to help mitigate the already shrinking gender pay gap.

 

 

**UPDATE (10/11/17 at 9:59 am). This Fortune article brings up the interesting question of how to navigate maternity leave (temporal flexibility) in the Canadian political landscape.

 

 

APPENDIX A

This graph, from the World Economic Forum, highlights the Global Gender Gap Index in contrast to its four subindexes, which determine its value. A Y-Axis value of zero equals inequality, and an X-Axis value of one equals equality. The Education Subindex is much higher than the Economic Subindex, as illustrated by the current environment in the United States—more women are in college than men, yet they are still earning less in their post-graduate careers. This difference indicates a need for a higher Economic Subindex to raise the Global Gender Gap Index.

 

Trucking is the backbone of the U.S. and international supply chain, delivering and exporting nearly 13 billion tons of finished and unfinished goods from factories overseas to doorsteps across America and vice versa. The next step in trucking — taking drivers out of the equation — will yield cheaper consumer goods and safety but could cause unemployment for well over three million people.

Uber has been investing in self-driving technology since launching their Advanced Technologies Group in 2015 out of Pittsburgh. While most companies are still focused on autonomous cars, Uber has started developing autonomous trucks in their division Otto.

One of their competitors, a startup called Embark, just received series A funding for $17 million. Embark has partnered with trucking manufacturer Peterbilt, which will undoubtedly give them a leg up against other self-driving truck companies.

Google has also entered the self-driving truck sphere too with Waymo, its autonomous driving division. Google sued Uber for taking its proprietary laser systems that they used for self-driving capabilities. A former manager at Waymo illegally downloaded information that he used to found Otto.

These three self-driving competitors could threaten nearly two million jobs according to an Obama era White House report, though no one can really say when that will happen and many disagree on a time frame. 

The industry is dominated by white males with an average age of 45. Around 95 percent of people who work in the industry are male and 75 percent are white. That matches up surprisingly well with the rest of the U.S., which is 77 percent white. So therefore, most people who drive trucks in the US, and who could also be displaced by automation, make up a large majority of the population. If trucking were to ever be completely automated in anyway a large portion of the workforce will go away and have trouble finding another line of work.  

Some experts including economic sociology lecturer at the University of Pennsylvania, Steve Viscelli, disagree with the dire estimates some people, like the White House, are floating.  

“There’s a dichotomy of it’s either never gonna happen is one response or it’s going to happen and we’re going to lose 3 million trucking jobs,” Viscelli said. He admits it’s hard to tell with tight-lipped Silicon Valley executives.

Still, based on the research he’s done for his book, The Big Rig, which explores how long-haul trucking has declined recently, there are many obstacles that these companies need to surmount before automation can replace jobs.

The mechanization of non-driving movement, the one thing that truck drivers have over automation, is a problem that has to be solved if big rig automation will take over the human element, Viscelli said. Port to warehouse and/or store trips will likely happen sooner as there are less tedious steps in between. In those direct routes, all the truck has to do is drive.

But for places that don’t have easily accessible loading docks or none at all and have variables that aren’t taken accounted for in the computer, trucking companies will still need humans to drive. There are other tasks that truck drivers do — opening and closing doors, inspecting the truck, performing ad hoc maintenance and driving in narrow city streets filled with pedestrians — that a robot simply can’t do and won’t be able to do any time soon on a large scale.

Viscelli estimates that real labor disruption won’t take place for at least three to ten years.

Mapping roads in a way that is compatible with these trucks is yet another problem. Google claims that they have mapped 99 percent of public roads in the United States, as of 2014. But, that’s only including public roads. There are just over four million miles of paved roads in America, according to the Bureau of Transportation Statistics. Even if that is only including public roads, they haven’t covered around 40 thousand miles of roads, or 8 round trips from L.A. to Miami. A massive investment of time is required to make sure maps provide a good enough base to automate with.

Viscelli said basic sensor limitations hold back trucking as well. Most light detection and ranging (LIDAR) systems in use on these prototype trucks can only see at three to four hundred feet. Driving at 55 miles per hour, it will take over 400 feet to stop a truck with an air brake system according to the Department of Motor Vehicles. Waymo’s truck also uses ultrasonic sensors and radar.

Integrating and processing nearly 6 million data points every few seconds from different sensors requires a lot of computational power and technical computer programming, also adding to the time it will take for these trucks to be pervasive on the road.

In an economic sense, the cost-benefit analysis doesn’t make sense yet. It will cost more to total a truck due and possibly kill people on the road due to faulty automation programming or equipment.

Jerry Lake, who runs a trucking business with his son and wife out of small-town Montrose, Colorado, says the variables that he faces daily on the road are hard for a machine to predict. He’s been driving trucks, on and off for 51 years, that’s 72 percent of his life.

“In this situation there are lives at stake with traffic around a self-driving truck,” Lake said. “I have a problem with all the variables you run into — accidents and weather — that the truck can react in time and the drivers can’t always do that either.”

One of the hardest difficulties for these trucks to overcome is visibility on the spectrum of white. Though Waymo, Embark and Otto trucks have omni-directional cameras, they have trouble determining if what’s in front of it is snow, fog or a white trailer, according to Lake, though they also use ultrasonic and radar to see object. A human would be much better at judging what visibility conditions are like.

Lake transports fuel around the Colorado foothills for Shell and used to transport jet fuel for the Montrose airport. He said it wouldn’t make sense for him to ever consider buying a self driving truck to add to his small fleet of two. Most of the driving he and his son do are off the interstate, between Montrose and Grand Junction, about 65 miles one way. Conditions on those roads harder to predict.  

Trucking jobs, though at risk like they have never been before, will still exist for a very long period of time. Regional trucking is still important; artificial intelligence would have trouble keeping up with a combined 70 years of driving experience in Lake’s company. In their promotional video, Otto still has truckers taking over once the truck gets off of the interstate, and many current drivers think that it will be human and machine working together.

https://www.youtube.com/watch?v=nfwOVvjK-sc&feature=youtu.be

But those who are employed in large trucking companies, contracted out by even larger multinational corporations, are the ones who can lose as they look to replace more people with automation to keep costs low. Keeping costs low will translate to lower prices in the store for consumers, but at the expense of a large portion of the population being unemployed and failing to reach their productive capacity.

Manufacturing jobs are an important point of comparison as they were the first sector to make use of automation. The first automation technology was installed by General Motors in their factory in 1961. Since the 1980s, the manufacturing sector has lost a lot of jobs. It went from around 19 million to its lowest point at 11 and a half million in 2010, likely in part due to the Great Recession.

Even more, a study by the National bureau of Economic Research, showed that one robot per 1,000 people could reduce the employment to population ratio by as much as 0.34 percentage points and reduce wages by as much as 0.5 percent. The graph above still shows a resurgence in jobs, but it will likely never go back to that 20 million number.  

For trucking, it illustrates that while automation could cause job loss, humans are still needed in some capacity to fix things when they break down and monitor them for safety. Automation may even reduce the sleep-deprivation that many truckers have by allowing them to sleep more on straight stretches of road without having to stop.

There’s still many obstacles these companies need to overcome before they can put these machines on the road. That includes the people that drive trucks as they will likely get in the way of any legislation that would legalize self-driving trucks with their livelihoods on the line. So for now, truck drivers will not face drastic unemployment, and may not for a long time because the human element can react better than any robot can. They could be on the road in three years or longer than 10 — it’s almost impossible to predict.

Lake still doesn’t see any benefits from automating trucking because for him it wouldn’t accomplish much.

“I don’t think it’s a good idea period to even be developing these trucks” he said. “I don’t even know what the advantage is or what they are trying to accomplish other than the fact that they can do it. Then you’re taking jobs away from people in America.”

On February 13, U.S. Senator for Arkansas, Tom Cotton, introduced the RAISE (Reforming American Immigration for Strong Employment) Act to the Senate. The RAISE Act seeks to amend the Immigration and Nationality Act to create a merit-based immigration system and replace the diversity immigrant visa program. The bill’s overall aim is to protect American taxpayer workers, taxpayers, and the economy.

The RAISE Act reduces overall immigration numbers to limit low-skilled and unskilled labor entering the U.S. Immigration reform is important now more than ever; America’s economy and future is dependent on it. The main cause for concern is the aging population. The U.S. population is aging rapidly as baby boomers enter old age and retirement.

The Population Reference Bureau reported the number of Americans aged 65 years and older is projected to more than double from 46 million today, to over 98 million by 2060. The 65 years and older group share of the total population will rise to nearly 24 percent from 15 percent.

An aging population has a direct impact on the labor force. This will result in a dependence on immigrants to replace current workers and fill new jobs. However, a surge in unskilled immigration over the past few decades has been blamed for depressing wages, according to President Donald Trump.

Since 1979, Americans with a high school diploma or less have seen their hourly wage decline, according to The White House. American workers without a high school diploma have seen their real hourly wages fall by 17 percent, in a press release quoting President Trump.

Twenty-nine percent of adult immigrants in the U.S. don’t hold a high school diploma, in contrast to seven percent native-born. However, native- and foreign-born adults hold bachelor’s degrees at similar rates, 32 percent for those born in the U.S. and 30 percent for those born outside the U.S.

Key sectors with low-skilled workers confirm the variance in education levels between immigrants and U.S. citizens. This is highly relevant to the agriculture and accommodation sectors. The majority of immigrant workers who work in the agriculture sector are low-skilled, compared to 29 percent of native workers. In the accommodation sector, more than half of foreign-born workers lack a high school diploma, compared to 25 percent of native workers.

On top of this, more than 50 percent of all immigrant households receive welfare benefits, compared to over 30 percent of native households, according to a 2015 Center for Immigration Studies Report.

Dean and Professor of Public Interest Law and Chicano/o Studies at the University of California, Davis, Kevin Johnson argues the reason there is a high number of foreign workers in low- to medium-skilled jobs sectors like agriculture, construction and services was not due to there being too many immigrants, but due to the work conditions.

“Low-skilled jobs are low status, pay low wages, and are physically challenging,” Johnson said. “Employers often say that they cannot get U.S. citizens to fill these kinds of jobs.”

The issue seen with the U.S.’s current immigration system is that it doesn’t prioritize the most highly skilled immigrants. On average, one million immigrants are accepted into the U.S. for legal permanent residency every year. On average, one out of 15 immigrants come to the U.S. with a high skillset.

Due to low-skilled workers taking the majority of non-citizen visas, the U.S. could be losing out on foreign talent. With the proposed merit-based immigration system, the RAISE Act will prioritize immigrants based purely on the skills and knowledge they bring to the U.S. The skills-based system rewards applicants points based on individual merit. The system rewards points in areas such as higher education, English language ability, high paying jobs, and past achievements. This process is to ensure immigrants contribute positively to the country and the economy.

The RAISE Act also prioritizes immediate family members of foreign workers to live in the U.S., and ends preferences for extended family members and adult children. The new reform also limits permanent residency of refugees to 50,000 a year, which is in line with the 13-year average.

Senator Cotton ultimately wants the RAISE Act to: 1. Help American workers receive a pay rise and achieve a higher standard of living, and 2. To promote economic growth and make the U.S. a more competitive country.

The proposed merit-based immigration proposal is modeled on the current Canadian and Australian systems. Both countries successfully attract highly skilled workers and see the benefits it adds to population growth, productivity and income per capita.

The various ways that migration and population growth can be linked to Canada and Australia’s productivity and income per capita growth include, supply of labor; capital, investment; government expenditure on services and taxation; competition; natural resources, land and environmental externalities; and international trade.

Immigration is the largest contributor to population growth in Canada since the early 2000s. Canada’s permanent immigration program is divided into three main streams: economic, family and humanitarian. In 2015 to 2016, Canada admitted 271,845 permanent immigrants. Of this number, the economic stream accounted for 60 percent of migrants, family made up 24 percent, and the remaining were humanitarian migrants. These proportions have remained fairly stable over the past 15 years.

In Australia, there are two pathways for skilled migration. The first, general skilled migration, requires applicants’ occupations to appear on a skilled occupations list. Most of these occupations are in professional areas such as medicine, engineering, or trades. The list is updated regularly based on an assessment of Australia’s economic needs at the time. The second pathway is for skilled migrants with an employer sponsor. This pathway is open to migrants with a wider range of skills. Employers must demonstrate they have a skilled position available and there are no Australians willing or able to take up the position.

In 2015 to 2016, Australia accepted 189,770 permanent migrants through its skilled and family immigration streams, and settled 18,000 refugees and humanitarian migrants. Sixty-seven percent of migrants came through the skilled stream, and 30.8 percent through the family stream. These numbers add almost one percent to the Australian population each year, a much larger proportion than the U.S. admits through its migration program.

Twenty years ago, more migrants came through the family stream than the employer stream. The change in numbers is a direct result of government policy prioritizing skilled migration because of its value to the economy.

A merit-based immigration system will transform the U.S. immigration system from primarily family-based to employment-based. Under the U.S.’s current system, most employment-based immigrants are highly skilled, but make up only 14 percent of those who receive green cards. Under the RAISE Act, employment-based immigrants would make up the majority of those who receive green cards.

Deputy Dean and Director of the Public Law and Policy Research Unit at Adelaide Law School at the University of Adelaide in Australia, Alexander Reilly, said increasing skilled migration at the expense of family migration can impact on the desires for family reunion of existing U.S. citizens.

“In Australia, parent migration is very difficult,” Reilly said. “It may be that partner and child migration, which is currently considered a matter of right here, will have quotas or waiting lists imposed.”

A problem Reilly sees in Australia with independent skilled migration is that migrants find it hard to get jobs in their area of expertise and end up unemployed.

“Skilled migrants’ success is better if they have family support, so merit-based migration definitely needs a strong family component.”

In the proposed points system for the U.S., applicants would earn points for meeting criteria to do with age (preference for persons between ages 26 and 30) and having a degree. Extra points would be awarded for degrees earned in the U.S. and in a STEM (science, technology, engineering and mathematics) field. Nobel Prize winners, professional athletes and English language speakers would also receive extra points.

Johnson said that while the Australia and Canada case studies were worth reviewing, the U.S. has its own history and political, social and economic forces that contribute to immigration pressures and flows that may not exist in Canada or Australia.

“Australia and Canada don’t operate in the same context as the U.S., so those main factors must be considered in any reform of U.S. immigration law,” Johnson said.

Johnson believes a merit-based immigration system that halves the number of legal immigrants entering the country will unintentionally increase the number of undocumented immigrants.

“The goal of the U.S. government is to reduce legal immigration from one million a year to 500,000 a year, and this reduction will be seen in family immigrant visas,” Johnson said. “With the current limits on legal immigration, this has bought in roughly 11 million undocumented immigrants to the U.S.”

“Making legal immigration even more restrictive will increase the likelihood that those who want to immigrate lawfully will resort to doing so illegally.”

When asked if the RAISE Act will reduce poverty, increase wages and save taxpayers millions of dollars, as stated by President Trump, Johnson replied, “There is no empirical evidence to support this claim.”

References

Camarota, S. A. (2015, September 10). Welfare Use by Immigrant and Native Households: An Analysis of Medicaid, Cash, Food, and Housing Programs (Report.). Center for Immigration Studies. Retrieved October 4, 2017, from Center for Immigration Studies website: https://cis.org/Report/Welfare-Use-Immigrant-and-Native-Households

Infographic: Annual average growth rate, natural increase and migratory increase per intercensal period, Canada, 1851 to 2056. (2017, March 30). Government of Canada. Retrieved October 04, 2017, from http://www.statcan.gc.ca/daily-quotidien/170208/g-a001-eng.htm

Mather, M. (2016, January). Fact Sheet: Aging in the United States. Population Reference Bureau. Retrieved October 04, 2017, from http://www.prb.org/Publications/Media-Guides/2016/aging-unitedstates-fact-sheet.aspx

Reilly, A., Paquet, M., & Johnson, K. (2017, September 17). RAISE Act: Global panel of scholars explains ‘merit-based’ immigration. The Conversation. Retrieved October 04, 2017, from http://theconversation.com/raise-act-global-panel-of-scholars-explains-merit-based-immigration-82062

Salerian, J. (2006, May 17). Economic Impacts of Migration and Population Growth (Report.). Retrieved October 4, 2017, from the Australian Government, Productivity Commission website: https://www.pc.gov.au/inquiries/completed/migration-population/report

Singer, A. (2016, August 02). Immigrant Workers in the U.S. Labor Force. The Brookings Institution. Retrieved October 04, 2017, from https://www.brookings.edu/research/immigrant-workers-in-the-u-s-labor-force/

The White House, Office of the Press Secretary. (2017, August 2). President Donald J. Trump Backs RAISE Act [Press release]. Retrieved October 4, 2017, from President Donald J. Trump Backs RAISE Act

U.S. Congress, Senate – Judiciary. (2017, February 13). Congress.gov (T. Cotton Sen., Author) [Cong. S.354 from 115th Cong., 1st sess.]. Retrieved October 4, 2017, from https://www.congress.gov/bill/115th-congress/senate-bill/354/text

According to Google Maps, the Mobil gas station located at 8489 Beverly Blvd in West Hollywood is surrounded by charging stations for electrical vehicles. This isn’t surprising because the number of EVs in California is increasing, and this particular area is ideally located at the intersection of two main arterial roads in Los Angeles: Beverly Blvd and La Cienega Blvd. This image raises an important question: are these charging stations competing with gasoline stations?

Bhulu Ahmed, the Mobil station’s owner, said that he hasn’t seen any change in his business over the past few years. “To be honest,” he added, “I do not see many EVs around here.” He explained that he has been working in the area for almost thirty years and, although the number of EV drivers has increased, he still serves the same number of customers as usual.

He hasn’t experienced significant changes in the cost of gas, either; that day, the price of regular gas was $4.49 per gallon. Certainly, an EV driver might claim that that price is much more expensive than what he pays to recharge his car.

According to research conducted by Michigan University, based on average yearly mileage of 15,000 miles, an EV driver pays about $540 per year to charge his car, rather than the $1,400 per year paid by the driver of a gas-powered automobile. These significant savings do not factor in that many EV drivers can charge their vehicles for free.

Despite charging stations being so convenient, and sometimes even free, there is still an issue that could kill, or at least curb, the expansion of electric vehicles: the undefined business model of these charging stations. Currently, every EV charging station charges different prices, which vary depending on the type of connector, the equipment features, and the area where it is located.

It is unknown whether EV charging stations will replicate the gasoline station’s business model, or whether the electricity offered for free by many plug-ins’ owners could prevent entrepreneurs from opening stations where drivers must pay to charge their vehicles.

The business model of EV charging stations is still clouded; perhaps this is one of the reasons why, although surrounded by EV charging stations, Bhulu Ahmed has not experienced a decrease in his business yet.

 

It’s complicated

     According to PlugShare, one of the most popular apps that allows users to find and review charging stations, none of the five charging stations close to Ahmed’s Mobil station have the same connector type or charges the same price. The closest one, at the Sofitel Hotel, has two J1772 EV plugs that cost $18 to use, once under six hours of parking is purchased. Another charging station in the area, at the Elan Hotel, has a Tesla plug type and the J1772. Unlike the Sofitel, the Elan does not require parking payment but only charging payment. Nearby, there are also charging stations at Trader Joe’s; there, drivers do not pay for parking, but they have to pay a fee for the charge through Blink, a network of charging stations for EVs. Moreover, people reported on PlugShare that they had problems at this location, because drivers of gas-powered cars park in spots reserved for EVs, and because of most of the chargers were broken.

From this, it is easy to see how an EV driver might experience many kinds of payment models in just a few miles. To avoid these issues, some people purchase their own charger. Once the initial installation costs, which are decreasing thanks to government incentives, have been paid, drivers can then charge their cars whenever they want, solving both the “range-anxiety” and the payment issue.

The differences among EV charging stations are numerous: some charge by the kilowatt hour, others charge drivers per session, others require drivers to purchase a subscription, allowing them to charge their vehicles wherever they want at uniform prices, and lastly, there are free charging stations.

“The cost of the electricity is determined by the owners of the charging equipment. Some choose to charge. Some offer free charging as a customer incentive. Some fold the cost of the charge into parking or HOA fees,” stated Jennifer Allen, the supervisor of the zero-emission vehicle and infrastructure office within the California Energy Commission’s Fuels and Transportation Division. Moreover, the owners determine prices also according to the type of charger level; a level 2 usually requires between $1 and $5 per session, while the DC fast-charging plug-ins require drivers to pay higher prices for the convenience of charging their cars in a very short time.

PlugShare’s CEO, Brian Kariger, explained how payment methods work in EV charging stations: “Station owners and operators choose pricing. For example, if you own a parking lot you could choose to purchase a charger from SemaConnect, one of our partners, and once it was installed in your lot, you’d log into a website to set pricing as you see fit. Your station would then appear in PlugShare, and drivers would enter their credit card information into the app to pay and be on their way.”

Some malls, supermarkets, and stores have chosen to offer free electricity because, as Kariger said, “some businesses install charging stations to attract customers.” Sorean Kim, a woman I interviewed at The Grove, said that she was taking advantage of the free charging station while shopping: “I found free places near my work and my home and actually my commute is not so far, so I do not have to charge my car very often.”

 

Not yet defined

   Might the free charging station model endanger the emergence of other models as well as the expansion of EVs? When I asked if they see a potential long-term business model based on charging EVs with free electric power, each of my interviewees answered that actually it is very unlikely.

Jennifer Allen stated that there are even gas stations selling electricity for EV vehicles right now. Indeed, even though it seems that the free charging station model is still growing, “free stations aren’t always the best option.” Indeed, from its data analysis, PlugShare found that drivers are willing to pay for features like faster charging and for being able to plug in at convenient locations along the highway during a long-distance trip.

In the last year, there has been a huge increase in the number of electric cars registered in the United States, especially in California, where there are many new programs and government incentives to encourage drivers to convert to EVs. Lisa Chiladakis, manager at Veloz, a Sacramento-based non-profit organization dedicated to increasing awareness about EVs, told me that the California government’s goal is to have 1.5 million EV drivers by 2025.

Thanks to the increased number of EVs and charging stations, new business models are being developed, even though there are free charging stations available. They range from the home-model, the networking-model pursued by companies such as ChargePoint, Blink, SemaConnect, eVgo… and the super-fast-charging model. As Brian Kariger pointed out, “one of the effects of having all of these less expensive, and in some cases consumer-owned, distributed energy resources is that it is opening up the energy business to more open models; for example, peer-to-peer energy trading. Electric vehicles themselves are mobile energy resources, and there are already pilot programs underway in which utilities and grid operators pay EV drivers for sending energy back into the grid. So not only will EV drivers be able to get reduced rates or free electricity, they will be able to sell energy to others as well.”

Overall, it seems that electrical vehicles are slowly reshaping the gas station business model that we are used to; we do not know yet which model will be the winning one, but surely many others are yet to come as the industry continues to evolve.

 

Observation on Wechat Marketing:

The Next Monopoly of the Chinese Advertising Market

 

Yutai Han

Midterm Project for JOUR469

Professor Kahn

Oct/08/2017

 

It’s amazing how much information an app can tell us about Chinese culture. Wechat, a social networking app developed by Tencent and first unveiled in 2011, is arguably, one of the most well known social media products in China. A TV commercial articulates the idea of Wechat as the only app you’ll need over the course of a typical day in your life: wake up and check up on the social feed, use Wechat Pay to buy breakfast, read articles published on Wechat channels (where ads will show up in the form of video commercials, banners, and integrated promotions), work on Wechat while texting friends simultaneously, shop and pay with Wechat, play games with friends on Wechat, etc.

This is the modern Chinese life—a life fully realized online, and integrated seamlessly with the virtual structure of mobile social networking. In this dimension created by Wechat, the user’s attention is attracted by new ways of integrated social advertising. Ads are placed using precise algorithms of user metadata so that the ad fits the needs of the user. Would it be the case that, because WeChat and Facebook are inherently social networking platforms that generate profit from their user data, and Facebook makes as much as six times profit from advertising than Tencent does through WeChat, does Wechat have the potential to outrun Baidu and Alibaba, and become the most powerful unicorn in the Chinese ad market?

One argument for that speculation is that Wechat has an enormous user base. With close to a billion monthly active users spending an average of 66 minutes everyday on the mobile App, Wechat has taken over both the work and social scene, replacing traditional communication methods such as email and messaging service in China. Tencent, its parent company, along with Baidu and Alibaba, together occupy over 60 percent of the total domestic advertising market in China, and are forecast to attract 15.5 percent of the global market in 2017, becoming the world’s second largest market of its kind. Looking at Tencent specifically, its online advertising revenue increased 55 percent to roughly 10 billion yuan for the second quarter of 2017, while social advertising, which derives mainly from WeChat, grew by 61 percent to about 6 billion Yuan. Online advertising accounts for 18 percent of Tencent’s total revenue. In comparison, Facebook has two billion monthly active users, and a profit of $9 billion. About 98 percent of Facebook’s total revenue comes from advertising, according to Facebook’s earnings report in the same quarter. It’s fair to say, then, that Tencent still has potential for market growth in social advertising. Tencent’s main source of revenue now comes from add-on services from video and mobile games, making 65 percent of its total revenue, which is not a surprising fact because one will see that a mobile game in the style of League of Legends, has gained popularity among the youth like a tropical storm. It was so popular that the official newspaper, People’s Daily, criticized it for bewitching the youth and called for formal regulation.

 

 

One can think of Tencent as a behemoth of products: Tencent videos is Netflix; WeChat is Facebook plus a prevalent and advanced mobile payment system, and there’s Tencent games; VR/AR firm acquisitions, etc. However, despite numerous branches of organizations, WeChat is arguably the most important for Tencent. According to a behavioral study conducted by a Tencent think tank, 92 percent of the interviewees choose to pay with their phone. Convenience stores, e-commerce websites and restaurants are the primary scenes for mobile payments. Artificial Intelligence comes in to play to dig out the valuable data for more precise targeting. On the other hand, because Wechat is a behemoth of products, user tend to rely heavily on them for their daily activities. The users expect a reliable experience when they are using Wechat, to the extent that even a minor bug of the social feed could cause everyone to panic. To add to that panic is when there are too many ads appearing on the user’s screen. This is perhaps why people think that WeChat has been unusually prudent in its advertising placement: too many ads appearing on a user’s social media feed could degrade a user’s experience. Wechat is only allowing one advertisement per day to appear on a user’s social feed. Facebook’s Instagram, has so many ads that I would lost count on the amount I see when scrolling down the screen. In addition, Instagram is rolling out methods that would me harder to discern whether the post is an advertisement recently. The ads on Instagram appear to be less professionally produced, and resembles the form of a totally innocent product you would see on your friend’s feed. However, on Wechat, one can easily spot the difference between the ad and other posts. But sometimes because it’s professionally tailored to attract attention, the audience might just click on it to see what happens. A friend could comment under the ad, or even talk to the company. This is part of an effort to establish the image of the brand.

(image source: https://blog.tacticrealtime.com/how-to-advertise-to-chinese-tourists)

The next reason is Wechat’s self-claimed efficiency of targeting consumers through use of data generated from Tencent’s other popular lines of internet products, such as Wechat Pay. One illuminative case happened recently when Wechat targets Chinese tourists traveling to foreign countries. According to the U.S. Travel Agency, Chinese residents took three million trips to the U.S. and spend $7,200 per trip, more than those of any other country. Travel exports to China were values at $35 billion, or 1.8 percent of U.S. GDP. $11 billion is related to education spending.

According to the South China Morning Post, Grace Yin, director of WeChat Pay’s international operations, told the Rise technology conference, “We will first make WeChat Pay available for Chinese customers when they travel outside [China],” Yin said. “We want Chinese customers to enjoy the same services when they go abroad, so the surge in outbound travelers will be the first market WeChat Pay targets.”

The National Holiday in China has just ended. According to an official report, the U.S. ranked number sixth in countries that have the most transaction using WeChat Pay. The marketing plan for WeChat looks like something like this: before a tourist even board the plane, WeChat can employ data to recognize that the user has searched for plane tickets inside WeChat and place ads by American brands to develop potential customer relationship. Partnering with Citcon, WeChat has also been promoting and installing mobile payment methods in the U.S. and starting in December, two of the Luxe Hotels in Los Angeles will be accepting payments via WeChat and Alipay, according to the LA Times.

“For the first time, we are making it possible for US brands to directly reach this audience through sophisticated targeting,” Poshu Yeung, the company’s vice-president of international business, said in a statement.

(image source: ChinaTechInsights.com)

What does he mean by “sophisticated targeting”? During its panel Advertising Week 2017, Steven Chang, Vice President of Tencent, introduced the “ONE Tencent” marketing philosophy, in which the key marketing insight is Tencent’s integration of its services through bid data computation, AI, and cashless payment to help clients develop their brand.

“Collectively, Tencent’s products form a ‘connector’ which is not just changing the way people live and think, but redefining the way brand communicates with consumers, ” said Chang.

Here, WeChat functions as the bridge between the virtual experience at the core of advertising and the specific advertising appearing in a user’s social media feed. WeChat is able to target different subgroups of users, using complicated algorithms that take into account a user’s marital status, age group, and even the cellphone model that the user owns. Furthermore, the algorithm computes the influence factor between a possible consumer and their friends on WeChat and places the ad based on the possibility of clicking an ad, which in turn maximizes ROI (Return On Investment, a measurement of the efficiency of advertising budget).

This is very similar to Facebook’s method of mining user data from “likes” on brand pages and posts. However, the fundamental difference is that WeChat was conceived for a consistently user-friendly mobile experience, and therefore has less ad space compared with that of Facebook. The advantage of this mobile-first design is that Tencent can successfully gain tons of users’ data generated by their Wechat payment records. And because Wechat Pay is actually convenient and anyone with a smartphone could learn it in matter of a few seconds, it grows loyal customers that uses Wechat Pay on a daily basis. The data will then be used for ad targeting purposes, of course, which some may consider to be ethically problematic. But what if targeting methods can serve a good purpose to society? Isn’t it the case that technology companies start with the intention to serve to some kind of common need? Then, what might the purpose be?

Adam Smith provides an important vision. “The great secret of education is to direct vanity to proper objects,” wrote Adam Smith in The Theory of Moral Sentiments. In this sense, if used properly, sophisticated marketing methods could direct human vanity toward higher ideals in a consumerist culture. One possible way that would make big companies such as Tencent and Facebook look less evil is the understanding that it’s the appetite of the consumer that they’re merely serving. Advertising producers would often borrow elements from popular culture for inspiration, because popular culture is an indication of what most people would turn to after a day’s work. Thus, the cycle of appetite and advertising is reflexive. Advertising is based on appetite, but the appetite is constructed by advertising in the first place and reinforced by unobtrusive and tailored advertisement.

We are seeing clever marketing examples on WeChat, such as Jo Malone London, which resulted in a 35 percent higher click rate and more than five times Return over Investment (ROI). The idea of the influencer is that people want to follow the hip. The fashion trend will be crafted by some carefully crafted identity, perfect in every way on social media. Instagram adopts more or less the same method to promote consumption. Now, through the use of data and influencers, the Jo Malone Valentine campaign did two things. First, it’s able to target loyal customers to buy a more expensive fragrance box sets because it’s Valentine’s Day. Second, people who are likely interested will be directed to a basic unit of fragrance when they click on the link. The ad itself feels romantic and good to look at, especially if one has a date. Thus, the customer will first be lured to click on the link, and then they will check out the product, and read reviews. If an influencer endorses the product and gives it a good review, the customer will more likely to buy the product.

(source: https://ad.weixin.qq.com/case)

To sum up, WeChat has a strong potential to become the next monopoly of digital advertising in China, and further drawing the global advertising spending into China, as more tourists and the Westernized youngsters prove themselves to be the bread and butter of luxury consumption. What’s more, as China’s economy gradually shifts from industrial production and cheap labor, it will need another backbone to rely on, and that backbone will be the domestic consumers. As a result of this shift in national economic direction, more research money will be funded in search of better advertising returns and marketing methods. As a behemoth of products all serving the purpose of social networking, Tencent already has a foot forward in data-gathering and a golden weapon to use.