Revised-Observation on Wechat Marketing: The Next Monopoly of the Chinese Advertising Market

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.

Many people lost their manufacturing jobs to robots, but will the same thing happen with trucks? (Revised)

Big tech money is chasing the development of self-driving trucks. Google, Uber and Tesla are investing heavily in this technology and a new autonomous truck startup called Embark has already pulled in $17 million of series A funding.

Though Silicon Valley is pouring money into self-driving trucks, it’s hard to tell when this technology will become widespread and cause an economic dislocation for a significant part of the American workforce.

Accurately pinpointing a time frame for when this disruption will occur is important for trucking, its related industries and consumers. But there are many variables that still need to be accounted for when estimating how many years it will realistically take for these trucks to become widespread.

Because of the inherent uncertainty in self-driving trucking projections, it is unclear how immediate the labor problem is. According to an Obama-era White House report, two million trucking jobs out of 3.27 million are already threatened. Automation is going to happen, but when it does and the extent to which it will affect jobs is up in the air, said University of Pennsylvania professor of economic sociology, Steve Viscelli.

“There’s a dichotomy of it’s [automated trucks] either never going to happen,” Viscelli said, or automation could happen in the near term and create a trucking jobs crisis.

As of now, most truckers are still employed. But within three to ten years though, Viscelli says Google, Uber and Embark, along with other companies could surmount the difficulties that self-driving trucks are currently facing.

But 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 and he thinks it’s a bad idea. He doesn’t see the complete switch to self-driving trucks happening as soon as Viscelli predicts or even happening at all.

“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,” Lake said. “Then you’re taking jobs away from people in America.”

For Lake’s local business, it doesn’t make any sense for him to switch to automation at all for his small fleet of two trucks.

First, retrofitting trucks for full automation is expensive. It costs about $23,400, according to the American Transportation Research Institute, and would not be cost effective for Lake’s business. Second, the specialized, localized trucking that Lake does requires extra knowledge of county and city roads, as most of the driving he does — 65 miles one way between Montrose and Grand Junction — aren’t on interstates.

Lake has trouble believing self-driving trucks can keep up with the monotony of long-haul trucking. “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,” he said.

Mapping roads in a way that is compatible with these trucks is another difficult variable to overcome. Google claims that they have mapped 99 percent of public roads in the United States, as of 2014; but that still leaves around 40 thousand miles of unmapped roads, or 8 round trips from L.A. to Miami.

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 three to four hundred feet in front of them. But 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. The automated system leaves no room for error and can pose a safety risk.

In an economic sense, the cost-benefit analysis doesn’t make sense yet. It will cost more to total a truck and possibly kill people on the road due to faulty automation programming or equipment than to deliver freight or a package without paying a driver.

At the same time, self-driving technology is making major strides in its development. Uber’s truck Otto transported 51,744 Budweiser cans for 120 miles between Fort Collins to Colorado Springs. The delivery had a police escort and a driver observed from inside the truck. Still, the proof of concept is rock solid.

The TraPac terminal in the Port of Los Angeles is completely automated; from the cranes to the four-legged trucks that load crates onto still human-operated tractor-trailers. And Long Beach isn’t too far behind. Amazon warehouses use robots instead of fork lifts and they are already working on using drones for deliveries.

The manufacturing sector has lost around 8 million jobs because of automation (which was started by General Motors in 1961), globalization and the Great Recession from 2008 to 2010. Trucking could also displace a large majority of America’s workforce with the allure of a more technologically-oriented supply chain.

Not having to pay for driver’s wages and benefits 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.

The trucking 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 if trucking were to ever be completely automated in any way at least 10 percent of America’s workforce will go away.

Race distribution in trucking.

Truckers have won a small battle in U.S. Congress to ban legislation on self-driving trucks and cars that are under 10,000 pounds, but as more pressure from tech companies mount, it’s unlikely to hold forever.

When self-driving trucks eventually become commonplace, the driver demographic will have trouble finding other work that requires higher level education. Most truckers don’t have college degrees, according to the Bureau of Labor Statistics. And middle-aged drivers will find that university education has skyrocketed at a rate faster than inflation. In a Bloomberg report, college tuition and fees have increased 1,120 percent since 1978.

Plenty of other professions are at risk too. An Oxford survey predicted that 47 percent of jobs around the world will be taken by robots in the coming decades. And it’s probably going to hit truckers first.

 

 

 

 

 

 

 

 

 

 

 

 

[Final]Can Natural Disaster Ever be Good to Economy?

Hurricanes, earthquakes, and wildfires … America and the world have been entangled by natural disasters recently. The natural disasters never could be considered as a positive force because of the destruction and death the bring. However, disasters also tend to make reconstruction the primary task for the government, making it easier for public money to flow into hard-hit regions. Economically, in what case would natural disasters be a boost to the regional economics? It depends the previous economic status of the affected region and the immediate assistance efficiency from the government.

In Sichuan, China, where a magnitude 8 earthquake took place in 2008, is an example how the local economy can recover and even expand during the post-disaster reconstruction. Poor infrastructure exacerbated the damage, leading to an official death toll of 87,150 and 4.8 million people homeless, according to the BBC News. The economic loss was estimated at $191 billion, the second highest in absolute number in history, according to 2013 CATDAT Damaging Earthquake Database. The noteworthy part was that the central counties in 2008 Sichuan earthquake, WenChuan and Ya’an, were neither a raw material production base nor manufacturing zone. Actually, these counties were poor. Thus, the earthquake did not hurt the Chinese exports or GDP to any great degree.

The rebuilding efforts cost the Chinese government almost $150 billion, equivalent to a fifth of its entire tax revenues for a single year, according to the state media of China in 2008. Quickly after the earthquake happened, the National Development and Reform Commission of China announced a reconstruction plan that “envisages buildings 169 hospitals and 4,432 primary and middle schools to replace collapsed structures. Another 2,600 schools that remained standing will be strengthened. More than 3 million homeless rural families will get new houses and 860,000 apartments in the city will be built.”

Relying on such tremendous capital investment, the regional economy of Sichuan was able to recover in an amazing speed. Here is the chart associated with the Gross Regional Product(GRP) of Sichuan from 1998 to 2010.The blue, yellow, and green line respectively indicate the GRP of Sichuan, of the hardest hit region of Sichuan in 2008 earthquake, of else of Sichuan, in the form of percent of Chinese GDP. The pinkish line represents the GRP per capital as ratio to Chinese GDP.

The graph tells that before the earthquake happened, the hardest hit region in Sichuan earthquake, which is composed of the ten serious-damaged counties, generated about 0.25% of Chinese GDP. Meanwhile, the Sichuan generated about 4.1% of Chinese total GDP.

By 2010, 2 years after the earthquake, the GRP of Sichuan and the GRP of non-central damage area of Sichuan both not only recovered but even had growth.

“The GRP level of the worst-hit area of Sichuan decreased by 35.4% in 2008 compared to the 2007 level. After three years of reconstruction, the region had still not returned to its pre-earthquake GRP level, but the GRP level of the rest of Sichuan experienced a boom in those three years because of the reconstruction demand stimulus,” according to a studies conducted by MOE Key Laboratory of Environmental Change and Natural Disaster of the Beijing Normal University.

The GRP per capital in Sichuan had a huge growth; however, it is meaningless considering the tragic death tolls.

In a article published by China Daily , by 2012 when reconstruction basically completed, the Deputy-Governor of Sichuan Gan Lin said, Sichuan was the fastest growing of the major economic provinces in China. China Daily asserts “the quake zone has seen unprecedented changes.” Governor Gan said, during the past four years, Sichuan’s GDP doubled more than 2 trillion yuan ($317 billion), enabling its per capita GDP to surpass $4,000.

*A noteworthy point for the above statement is the “go west” strategy to increase inland development formulated by the State Council in 2000 also plays an significant factor to Sichuan’s growth.

“When something is destroyed you don’t necessarily rebuild the same thing that you had,” said Mark Skidmore, an economics professor at Michigan State University. “You might use updated technology, you might do things more efficiently.” With massive amount of national resources, “the disasters allow new and more efficient infrastructure to be built, forcing the transition to a sleeker, more productive economy in the long term, a New York Times article commented on the Sichuan Earthquake in July, 2008.

More practical and explicit reflection of the benefits from 2008 earthquake to Sichuan region comes from the 7.0 magnitude Sichuan earthquake in Ya’an. According to the BBC report, “none of the buildings built since the Sichuan earthquakes collapsed.” The quality of housing for sure has improved.

However, the previous economic condition of the hardest hit region in Sichuan earthquake facilitated the recovery session. A New York Times article wrote about one month after the earthquake, “only 1 percent of China’s population lives in the hardest hit quake-affected area, in northern Sichuan Province. Those residents account for an even smaller share of China’s economic output, because many of them are impoverished farmers.” In other words, these areas might not receive this much of national investment or resources within short period of time.

The economic affects brought by Northridge earthquake in 1994 was a different story. That 6.7 magnitude quake struck an area of 2,192 square miles in the San Fernando Valley, causing 57 people killed and 11,800 injuries. It is still ranked by CNN Money as the most expensive earthquake in American history, costing $44 billion.

In the research “The Northridge Earthquake, USA and its Economic and Social Impacts” conducted by Professor William J Petak from University of Southern California and Research Fellow Shirin Elahi from University of Surrey explains the difficulty of reconstruction for Northridge area, “Northridge earthquake was a direct hit on an urban area and the scale of losses caused by the earthquake far exceeded expectations.”

Unlike regions in Sichuan, US has a large concentration of localised industries, such as the entertainment and aerospace industries in southern California, which was severely undermined by the earthquake, the research argues. Moreover, unlike most people lived in Sichuan’s affected regions were rural farmers, San Fernando Valley supports half of the city of Los Angeles’ population. “Approximately 48% of the population were homeowners – middle class and therefore not obviously insecure- yet many proved to be vulnerable to the hazard,” the Northridge Earthquake research claims.

Another important factor that determines the success of reconstruction after catastrophe is how effective and efficient the state or the federal government respond to the recovery assistance. The highly-centralized government system allowed the Chinese government to respond Sichuan Earthquake immediately, ordering national assistance and resources investment. Kevin L. Kliesen, Economist from Federal Reserve Bank of St. Louis wrote in his article “The Economics of Natural Disaster,” explains the difference in American government, “although emergency funds for food and shelter are usually disbursed immediately by Presidential directive, monies for longer-term rebuilding efforts are often appropriated by Congress with a substantial lag.” The research “The Northridge Earthquake, USA and its Economic and Social Impacts” criticizes the reaction from the government during the Northridge Earthquake. The research attacks the lack of “a desire for a recovery to reproduce a return to normalcy, and achieve the status quo of the socio-economic and built environment prior to the earthquake.” Many federal, state and local officials were not willing to sacrifice their own political, economic, social or environmental agenda to cooperate to help the affected regions, the research asserts. They were at best willing to make adjustment.

An extreme case is the Haiti’s response to earthquake. The Bernard L. Schwartz Chair in Economic Policy Development Martin Neil Baily wrote in an article for Brookings that Haiti, which is too poor to manage the immediate recover after hurricane, has to wait international aid to get basic rebuilding, leaving alone economic growth. It is so difficult for Haiti to recover.

The study of economy in disasters is not new. In 1969, Douglas Dacy and Howard Kunreuther, two young analysts at the Institute for Defense Analyses, published a book called “The Economics of Natural Disasters.”  It was probably one of the first attempts to measure the economic influence of catastrophe. The book argues that the dreadful Alaska earthquake of 1964 helped the Alaska economy by garnering government loans and grants for rebuilding.

“We got a lot of hate mail for that finding,” said Kunreuther, now a professor of business and public policy at the Wharton School of the University of Pennsylvania.

The theory of economic boom from disasters also received criticism.“Over any reasonably relevant period of time, society is not made wealthier by destroying resources,” Donald Boudreaux, an economics professor at George Mason University, said. If it were, “Beirut should be one of the wealthiest places in the world.” Economist Frédéric Bastiat labeled the disastrous economy theory as “the broken window fallacy” in his article “What is Seen and What is not Seen.” Bastiat compares the disaster reconstruction to fix a broken window. It costs $100 dollar to fix a window. The repairman and window shops got money because the window owner pays it. In the reconstruction case, the money comes from tax payers or just money printers. The natural disaster could be an economic boost to a region, but it always is an economic downturn for the whole nation.

In conclusion, the theory model of disastrous benefits for economy should be viewed as that the areas that would not receive national resources or investment during the normal time becomes privileged after suffering catastrophe. It also gives these areas more opportunity and capital to develop during the reconstruction period. The previous economic condition of the affected region and the efficiency of government assistance determine the success of the recovery. Despite to the regional growth, we should never be positive toward disasters because it never generates economy but merely redirects capital and resources to recover a definite loss of wealth.

Is The U.S. Avocado Industry In The Pits?

The newest administration has drawn significant attention to cons of Mexican-American trade, claiming that Mexico is overall hurting rather than helping America’s economy. One drastic impact that our southern neighbor definitely has is on the U.S.’s avocado industry.

The fruit itself has its roots in Mexico, so it comes as no surprise that this country has always been the world’s top producer. Although avocados are endemic to Mexico, the Fuerte variety found new popularity in America in the late 1800s. After the Hass variety, developed by Rudolph Hass at his farm in La Habra, CA in the 1920s, eventually became more favored for its taste and texture, subsequently gaining more notoriety after a marketing push in the 1950s. This was the beginning of the business’s widespread success and marked the start of its major growth.

As this new industry began to grow in the U.S., growers were protected from competition due to a quarantine set in place by the USDA in 1914 to prevent the introduction of seed weevils, stem borers, and other malicious pests that threaten the health of this crop. However, in 1997, this was amended to allow for 19 states to accept Mexican avocado imports from pest-free zones in order to comply with new trade regulations enacted by the North American Free Trade Agreement. Furthermore, in 2001, the Mexican Government won its plea to expand this number to 31 states as well as lengthen the shipping season, and in 2007, all states were allowed to import this produce.

These events significantly increased the amount of direct competition the American avocado industry faces. Though the growing seasons align, Mexico has the advantage of cheaper labor and water costs and is therefore able to offer a better price to consumers. As such, these imported fruits have dominated the American market; currently, 93% of Hass avocados in the U.S. come from Mexico, according to the Hass Avocado Board.

However, the past few years have provided hope for U.S. growers. First, the demand for avocados has risen exponentially. In 1985, Americans only consumed an average of 4 million pounds of avocados per week, but as of 2014, that number rose to a record-breaking 37+ million. The Fresh Fruit Portal projects this to rise to over 50 million by 2019.

Moreover, trade sanctions proposed by President Trump severely threaten the Mexican produce industry at large, as these tariffs, allegedly 20% or higher, will make it nearly impossible for trade to keep up in this $1.62 billion industry.

Sad news for avo toast and guacamole lovers, though: prices of the fruit will likely skyrocket if this trade restriction goes into effect. The high tax combined with the current and projected demand for avocados ultimately means a loss for consumers.

Other sources: California Grown; University of California Cooperative Extension Subtropical Fruit Crops Research & Education; Civil Eats; Statista

Rash Economic Indication

According to Advertising Age, the sales of diaper-rash cream may indicate the state of the economy. The logic behind the claim is that when the economy is down and parents are trying to spend less money, their budgets decrease and therefore they aim to spend less money on even basic supplies for their families. This mentality causes them to change their children less often in order to conserve diapers and spend less on this costly necessity, increasing the likelihood of babies’ sensitive skin becoming irritated by the wet material. 

As of 2011, diaper cream sales had been on the rise for several years, showing about 2.8% growth, despite the population of infants ages 2 and under in the U.S. falling about 3% in the same time period. Further, data SymphonyIRI data from Deutsche Bank suggests that since 2009, diaper rash cream sales have gone up despite a definitive decline in the sales of diapers themselves.

But does the cost of such a basic item really have an impact on families’ overall expenditures? Actually, yes, as the average American parent is expected to clean up their babies’ bums an average of 6.3 times daily, which adds up to an estimated $1500 per year.

[Source]

So, during a time of economic recession and high unemployment, it’s easy to imagine that parents may wait just a few hours longer to change their children in an effort to conserve their supply and spend less. Therefore, as obscure as it may seem, sales of diaper cream can be viewed as an economic indicator.

Other sources: CNN

Can Natural Disaster Ever be Good to Economy?

Hurricane, earthquake, and wildfire… America and the world have been entangled by natural disasters recently. The natural disasters indeed never could be a positive thing because of its destruction and death tolls; however, the disasters also tend to make reconstruction the primary task for the government, which would face little obstacle to pour money into the affected regions. Thus, setting humanity aside, natural disasters in some situations could be a boost to the regional economics.

Sichuan in China, where a magnitude 8 earthquake stoke in 2008, is an example that the local economy benefits during the post-disaster reconstruction. The poor infrastructure led the Sichuan earthquake in China to end with 87,150 people death toll and 4,800,000 people homeless, according to the BBC News. With $191 billion economic loss, the Sichuan Earthquake was the second highest in terms of economic losses. The fortunate part was that the center counties in 2008 Sichuan earthquake, Wenchuan and Ya’an, were neither a raw material production base nor manufacturing zone; actually, these counties were poor. Thus, the earthquake did not hurt much the Chinese exports and GDP.

(from BBC)

The rebuilding efforts costs the Chinese government almost $150 billion,equivalent to a fifth of its entire tax revenues for a single year, according to the Guardian.The rebuilding plan will “envisages building 169 hospitals and 4,432 primary and middle schools to replace collapsed structures.” “Another 2,600 schools that remained standing will be strengthened.Under the plan, more than 3 million homeless rural families will get new houses and 860,000 apartments in the city will be built.”

It is brutal but true to say this immense earthquake served as a stimulus to Sichuan’s local economy. “When something is destroyed you don’t necessarily rebuild the same thing that you had,” said Mark Skidmore, an economics professor at Michigan State University. “You might use updated technology, you might do things more efficiently.”

As poor and small counties in China, WenChuan and Ya’an have minimal chance to receive this much of national investments and resources.

“The GRP level (as a percentage of Chinese GDP) of the worst-hit area of Sichuan decreased by 35.4% in 2008 compared to the 2007 level. After three years of reconstruction, the region had still not returned to its pre-earthquake GRP level, but the GRP level of the rest of Sichuan experienced a boom in those three years because of the reconstruction demand stimulus,” According to a studies conducted by MOE Key Laboratory of Environmental Change and Natural Disaster of the Beijing Normal University.


It is understandable for the chart above that depicts the economic recovery of the worst-hit region in Sichuan and else of Sichuan. The hardest hit region suffered the destruction and the labor shortage the most. Even with such tremendous amount of resources and capital, the quake center regions hardly could reach effective capacity and productivity. The else of Sichuan are in a much better situation that these recovery investment creates job opportunity and industrial production.

More practical reflection of the benefits from 2008 earthquake to Sichuan region comes from the 7.0 magnitude Sichuan earthquake in Ya’an. According to the BBC report, “none of the buildings built since the Sichuan earthquakes collapsed.” The quality of housing for sure has improved.

The claim that natural disaster would boost regional economy is not new, but it has remained a small field of study because critics charge “disaster economists with oversimplifying enormously complex economic systems and seeing illusory effects that stem only from the crudeness of the available economic measuring tools.”

In 1969, Douglas Dacy and Howard Kunreuther, two young analysts at the Institute for Defense Analyses, published a book called “The Economics of Natural Disasters.”  It was probably one of the first attempts to measure the economic influence of catastrophe. The book argues that the dreadful Alaska earthquake of 1964 helped Alaska economy by garnering government loans and grants for rebuilding.

“We got a lot of hate mail for that finding,” said Kunreuther, now a professor of business and public policy at the Wharton School of the University of Pennsylvania.

Gus Faucher’s study also supported the Dacy’s and Kunreuther’s claim. Fauncher is the director of macroeconomics at Moody’s Economy.com. He found sharp increases in construction employment after Hurricane Andrew attacked Florida in 1992 and after the Northridge earthquake of 1994.

The Bernard L. Schwartz Chair in Economic Policy Development Martin Neil Baily said whether the economy of affected regions can be benefited depends on “the way the country or region responds to the crisis”. The time factor is the most important here. He gave an example that Haiti, where is too poor to manage the immediate recover after hurricane, has to wait international aid to get basic rebuilding, leaving alone economic growth.

The Hurricane Katrina was a debatable case. Faucher accuses government aid was slow to arrive and with insurance payouts so low, there were so many residents left New Orlean. The economic recovery and boost both did not come.

However, there are also many critics to the theory of disaster economic growth. It is important to remember that the wealth to the affected regions is not generated by the hurricane or earthquake, “the money and labor that go into postdisaster rebuilding are simply being redirected from other productive uses.”The natural disaster could be an economic boost to a region, but it always is an economic downturn for the whole nation. Moreover, some jobs are benefited at the cost of other industries.

“If you’re a carpenter, a trash remover, a physician, you may be made better off,” said Donald Boudreaux, an economics professor at George Mason University. “But the things that those producers would have otherwise produced are not going to be produced.”

Here is the chart of the wage and employment growth for New Orleans during the immediate recovery time after the Hurricane Katrina.

It is clear that construction, waster service, and real estate enjoyed a huge economic boost, while entertainment and food service suffered.

“Over any reasonably relevant period of time, society is not made wealthier by destroying resources,” Boudreaux said. If it were, “Beirut should be one of the wealthiest places in the world.”

The theory model of disastrous benefits for economy should be viewed as that the areas that would not receive national resources or investment during the normal time becomes privileged after suffering catastrophe. It also gives these areas more opportunity and capital to develop during the reconstruction. The catastrophe wiped out the outdated facilities and infrastructure and replace them with more efficient and modern ones. “It might be seen as Mother Nature’s contribution to what the Austrian-born U.S. economist Joseph Schumpeter famously called capitalism’s ‘creative destruction.'”

As long as the government responds to the disaster quickly with reconstruction capitals, it is general to see a quick recovery for the affected area and a bullish future for the local economy.

Once again, it is inhuman and cruel to say the natural disaster is a good thing, and it is significant to remember it hurts national economy as a whole. However, it could be an opportunity for the specifically affected regions to develop and reform its economy.

Germany –– The Land of Productivity.

Germany. Deutschland. The leading country of the Eurozone.

Germany continues to maintain a strong economy. In fact, German workers have paved the way for economic success while utilizing fewer working hours with more productivity.

Seizing Opportunities

Ironically, the hours worked by Germans are significantly lower than other countries in the EU. Some of the strongest economies have an average of 32-hour work-weeks, whereas Germany, the leading economy of the EU, only has a short 26-hour work-week. The trick to Germany’s success? Productivity. By definition labor productivity is “the amount of goods and services produced by one hour of labor; specifically, labor productivity measures the amount of real gross domestic product (GDP) produced by an hour of labor” (Investopedia). German workers see success in productivity because they are investing in advanced technologies and machineries in order to “seize the opportunities of digitization, remain internationally competitive and drive innovation” (Nienaber, 2017). The graph below highlights the GDP per hour worked for various countries in the EU, ranking Germany with nearly the highest GDP per hour worked.

As seen in the data above, Germany produces more goods per hour than its competing countries and works fewer hours. In order to see growth in that productivity, an economy needs physical capital, new technology, and human capital, which Germany has (Investopedia).

A Strong Work Environment

Many different aspects factor into Germany’s economic and productive success. Whether it is that German work culture is very by-the-book –– when you are at work all you do is work — or they have been trained as a population to maintain efficiency, they have found success in business. Essentially, they move quickly but also remain focused. Starting at age 15, German students leave their education to go into apprenticeships. Rather than staying in school and learning, they experience the working world and learn from there. At a young age they are automatically conditioned to be more efficient and productive in the work place. Adding light to Germany’s productivity makers, The World Economic Forum’s 2012-2013 Global Competitiveness Report ranks Germany 5th in higher education and training and 3rd in infrastructure and business sophistication. In fact, as the world’s 2nd largest exporter and one of the most highly advanced manufacturers, Germans would be expected to work off the clock, non-stop. But, that is not the case. Again, this goes to the point of their ability to seize opportunities because of their investment in advanced technologies and choice to constantly innovate. The ‘—‘ mark below indicates Germany’s competitive success relative to 41 other countries and 11 other members of the European Union. This demonstrates that they have remained a strong and leading export country since the fall of the Berlin Wall. So, what made the fall of the Berlin Wall such a strengthening factor in Germany’s economy? Let’s look at a brief history.

A Brief History

Looking back to the Industrial Revolution of the 1830s, Germans had an innovative and entrepreneurial mindset which led them to be early adopters of coal production and rail transportation (Brenner, 2014). That’s just a mere example of the beginning of their strong economic trajectory. In order to properly look at their success, let’s fast forward to 1989 with the fall of the Berlin Wall. This historical moment finally ended the divide between East Germany and West Germany and brought forth a whole new labor force and marketplace of ideas. Germany acted fast and placed an emphasis on the complex manufacturing of products by which other countries simply could not compete. For example, they have created a thriving auto industry producing the world’s most innovative, luxurious and strongest car brands. Through advanced manufacturing and trade exports, they quickly became a top net exporter to other countries. Not only did this pave the way towards a healthy economic future for Germany, it also made them a key country in the expansion of the EU –– mending the European financial crisis with one currency: the euro. For reference, the graph below represents the significant raise in GDP of the Eurozone after enacting the euro.


Source: data world bank

According to current (2017) data from The Heritage Foundation, Germany’s overall economic score is a 73.8 out of 100. A country’s economic score “focuses on four key aspects of the economic environment over which governments typically exercise political control – rule of law, government size, regulatory efficiency, market openness” (Heritage). Within these four measures, there are 12 sub-components that are measured on a scale of 0 to 100 which “are equally weighted and averaged to produce an overall economic freedom score for each economy” (Heritage). Where Germany’s numbers show strength is under fiscal health (government size), business freedom (regulatory efficiency), monetary freedom (regulatory efficiency), trade freedom (open markets), investment freedom (open markets), and property rights (rule of law), as identified in the graphic below. What is so great about Germany is that they continue to show success in business freedom — both on the business side and the investment side. To that end, Germans are willing to start their own businesses, invest in businesses, and overall innovate a business because they have the capital for it.

If you wish to view this further and get directed to the site, click here.

Now that the economic score of Germany is clear, below is a graph of Germany’s score in comparison to both Europe and the world, with Germany ranking higher against each.

If you want to compare other countries and view the graph in real time, click here.

Unparalleled Unemployment Rates

Without high employment rates, productivity would remain low because typically it means there is not as much work to be done. In the simplest terms, Germany has more money to invest in business, therefore they have more money to invest in workers, which leads them to more employees getting the job done. Germany went from a steep 5 million unemployed workers in 2005 to a low 2.7 million unemployed, as shown in graph A titled “Germany unemployed persons.” Graph B, titled “Unemployment rate,” demonstrates Germany’s unemployment rate in regards to the U.S., U.K., and France.

A)

B)c

According to The Guardian, “a strong economic backdrop has helped Germany post a record budget surplus of €23.7bn in 2017, fueled by higher tax revenues, rising employment and low debt costs. It was the highest budget surplus since reunification in 1990 and the third successive year the government has had a budget surplus” (Monaghan and Wearden, 2017). Clearly, the Germans productivity is paying off in more ways than just being a leading exporter. They are truly a financially sound country.

The German Way

Germany finds its way as a leading economy due to the productivity it has retained from its workers, the strength in their manufacturing technology, their education systems, and their overall ability to constantly innovate. German workers are unafraid to pave the way for business freedom. With an abundance of capital to invest toward business success, a strong workforce, and overall economic strength, Germany continues to be a force to be reckoned with. Fewer hours doesn’t always mean less work! Use Germany as that example.

http://money.cnn.com/2017/09/06/news/economy/germany-election-merkel-economy-inequality/index.html

https://www.reuters.com/article/us-germany-economy-gdp/german-economic-growth-picks-up-speed-good-news-for-merkel-idUSKBN1880S6

https://www.expertmarket.co.uk/focus/worlds-most-productive-countries-2017

https://www.theguardian.com/world/blog/2017/feb/23/germanys-gdp-shows-19-rise-over-last-year

https://qz.com/586547/germany-is-the-worlds-strongest-economy/

http://www.cnn.com/2014/10/16/world/europe/germany-25-years-of-success/index.html

http://www.investopedia.com/terms/l/labor-productivity.asp

http://www.investopedia.com/financial-edge/1212/why-germany-is-the-economic-powerhouse-of-the-eurozone.aspx

http://stats.oecd.org/Index.aspx?DatasetCode=ANHRS#

http://www.heritage.org/index/heatmap

http://www.heritage.org/index/country/germany

https://data.worldbank.org/region/euro-area?view=chart

 

Education: A Catalyst in Gender Pay Gap

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 13th best in global gender pay in 2016 (the U.S. ranked 45th 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.

 

Many people lost their manufacturing jobs to robots, but will the same thing happen with trucks?

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.

U.S. Department of Transportation

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.

Google’s self-driving truck

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.

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.

Bureau of Labor Statistics

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.”

Proposed immigration reform to grow U.S. economy, or not?

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