2. Important questions that can be analysed with Economics

Some selected examples 1.The economics of discrimination (males vs. females, black vs. whites, etc.) 2.Poor and rich countries: what is the difference? 3.The economics of superstars (rock stars, football players, etc.) 4.Monetary policy: why you should care about the ECB

1. The economics of discrimination

Wage differentials by race (US)

What is discrimination? Is this necessary discrimination? Why do we observe these differentials: –Different characteristics –Different preferences –Discrimination?

Are Blacks worse workers?

Wage differentials by gender

Wage and employment differentials by gender

Where does discrimination take place? Where there are less working women, the wage gap is smaller…WHY? Selection must be important… –Getting a job for a woman is more difficult than for a man… –The women who are working are the very good ones…

How difficult is it to get a job for a woman? BLIND AUCTIONS IN ORCHESTRAS

How difficult is it to get a job for a woman? BLIND CVs

2. Why some countries are rich and others are poor?

The tragedy of Africa!

The catching up of India and Cina

A fancier way of looking at the same thing Income distribution over time

Why do some countries grow and others remain poor? Human capital? Investment in infrastructure? Natural resources? Culture? Institutions? –Good institutions may be antitrust regulations, corporate governance, conflicts of interest, etc.

Acemoglu et al. think it’s institutions… Is it sufficient to look at whether countries with some “good” institutions are richer than others? Good instituions may be “endogenous”: –rich countries are rich because they have good insitutions or do they have good institutions becasue they are rich? Acemoglu et. al. look at SETTLER’s MORTALITY -Acemoglu D., Simon Johnson and James Robinson, “The Colonial Origins of Comparative Development: An Empirical Investigation” American Economic Review, December, 2001, volume 91, pp

2. Why does David Beckham make 28millions euro a year? The economics of superstars

Economists have studied these cases and found two conditions under which these huge earnings emerge: 1. Quantity is not a substitute for quality: i.e. watching many bad games does not equal watching one very good game 2. Technology allows many consumers (spectators) for each single good, i.e. produce just one game, then very many persons can see it.

The economics of superstars If I have the very big star I get a huge number of spectators And now even more with television… Without television, one had to go to the stadium and at maximum I had the stadium number of spectator per game The value of having the big star has increased enormously…

The economics of superstars Think why this does not happen in other markets Take economics professors… –If you get the very big star there still are substitutes, i.e. lower level universities with lower prices –The number of additional students you get is limited (by class size, congestion, etc.) Should we broadcast economics classes? –They do it…but at 3 a.m.!!!

3. Why you should care about what the ECB does

What is the European Central Bank? It’s where we print euro notes and coins It’s where the interest rate (the price of money) is set (partially) …Incidentally…WHY DO WE USE MONEY?

Interest rates You want to buy a house. Go to the bank and ask for, say 200,000 euros Money is not for free, you need to pay for thaving this money in advance… Say 3%... It means you will have to give back to the bank 206,000 euros

Mortgages There typically are many different types of mortgages –Fixed-interest –Variable interest –Mixed… Suppose you choose variable (now it’s the most common) and then the ECB rises interest rates…

All very nice…but…can I earn a living with economics?

What do economists do? Research (academia, private organizations, NGOSs, International Organisations, etc…) Financial sector (analysists, investment bankers,…) Consultancies (competition policies, strategy, etc.) Set up your own business (Soru is a Bocconi economist!)