A Fertilizer Oligopoly?

C. Robert Taylor and Diana L. Moss have written "The Fertilizer Oligopoly: The Case for Antitrust Enforcement," as a monograph for the American Antitrust Institute. Those looking for examples of possibly anticompetitive behavior, whether for classroom examples or for other settings, will find the argument intriguing. Taylor (no relation!) and Moss set the stage this way:

"Fertilizers are a critical input in the agricultural sector. Industrial farming in much of the world is heavily dependent on external inputs of nitrogen, phosphorus, and potassium or potash. Following an industry shakeout from 1998 to 2004, fertilizer prices increased dramatically in 2008.High prices persisted for several quarters, dipped in 2009, and have since returned to supracompetitive 2008 levels. The fertilizer industry has, and continues to be, marked by considerable excess capacity. At the same time, large buyers of fertilizer such as China and India are becoming increasingly powerful, putting downward pressure on high prices. Earlier in 2013, the decision of key eastern European potash producers to refuse to deal with such buyers or cut their prices has caused significant disturbance among global producers, with falling profits industry-wide. The foregoing pattern raises a number of questions about the dynamics of supracompetitive fertilizer price increases and profits. Price setting appears to have been the dominant strategy in 2008, shifting to supply cutbacks in 2011 in order to strengthen and maintain prices, particularly with major customers. This was followed by apparent defections from tacit or explicit agreements among global potash producers in mid-2013. Such defections and the subsequent breakdown in any tacit or explicit agreement among producers should be a strong signal that anticompetitive coordination has been at play."

They also point out that the fertilizer industry has a history of cartels going back more than a century. One writer identified 83 fertilizer cartel episodes from 1902 to 2010. The fertilizer industry includes a number of separate firms, but in the U.S. and Canada, they are organized into government-approved export cartels. In the United States, the Webb-Pomerene law passed back around World War I allowed small and medium-sized companies to form export cartels to counterbalance the power of foreign governments, as long as such cartels did not affect domestic prices. The fertilizer export cartel has been up and running since. Nowadays, the global industry structure looks like this:

"The structure of the world’s phosphorus and potash markets, while complex, may best be viewed as duopolies with small, high cost fringe firms. The phosphorus duopoly is comprised of
the U.S. export cartel, PhosChem, operating with limited antitrust immunity under Webb-Pomerene, and the Moroccan monopoly OCP. There are presently only two members of PhosChem – PotashCorp and Mosaic. PhosChem members account for 52 percent of world phosphorus trade. ... The potash duopoly is comprised of the Canadian sanctioned export cartel, Canpotex, that markets potash from Saskatchewan, and a Russian cabal.28 The three owner-members of Canpotex are PotashCorp, Mosaic, and Agrium, each with a fixed market share of 54 percent, 37 percent and 9 percent of export sales, respectively. Canpotex accounts for 61 percent of world potash trade, including trade by other potash companies in which PotashCorp has significant ownership. The Russian cabal accounts for 32 percent of trade, with a high-cost, non-integrated fringe accounting for the remaining seven percent.  ... Many of the major phosphorus producers also manufacture nitrogen fertilizer, partly because a source of nitrogen is required to stabilize phosphorus, and partly because many fertilizer manufacturers sell blended nitrogen-phosphorus-potash fertilizer at wholesale and retail. ... While global nitrogen fertilizer producers are not as closely intertwined as are phosphorus and potash producers, duopolies in phosphorus and potash potentially invite antitrust mischief. They achieve this, at a minimum, through the sharing of information and executive decision-making between PhosChem and Canpotex, and the division of markets inside and outside North America. " 

Here's the pattern of fertilizer prices in recent years. In the nature of things, it is difficult to prove that price increases are a result of oligopolistic behavior as opposed to market prices, although Taylor and Moss provide a number of statistical and anecdotal arguments to make the case.

Their narrative is that the fertilizer oligopoly may have been derailed in 2013 by China and India. "Major fertilizer customers such as India and China have developed into powerful buyers, a shift that could have potentially important implications for the pricing and output strategies of large sellers. ...Reports indicate that fertilizer contracts for India and China are now negotiated by a single entity, or only a few entities for each country. ... The exercise of countervailing power by China and India may be responsible in part for the significant market disruption in mid-2013."

The Federal Trade Commission has not pushed back against the fertilizer oligopoly, instead arguing that the price spike in 2008 was related to various demand and supply factors. However, in June 2012 the U.S. Court of Appeals for the 7th Circuit refused to dismiss a private antitrust suit concerning the potash market, and wrote in a unanimous opinion, “the inferences from these allegations is not just plausible but compelling that the cartel meant to, and did in fact, keep prices artificially high in the United States.” Soon after, the case was settled for more than $100 million.

Taylor and Moss write: "Damages from supra-competitive pricing of fertilizer likely amount to tens of billions of dollars annually, the direct effects of which are felt by farmers and ranchers. But consumers all over the world suffer indirectly from cartelization of the fertilizer industry through higher food prices, particularly low income and subsistence demographics. ... [I]t is clear that corporate and political control of essential plant nutrients may be one of the most severe competition issues facing national economies today." Without prejudging the verdict, the fertilizer market seems like a situation where the Federal Trade Commission, the U.S. Department of Justice, and antitrust agencies around the world should be taking another look.

Slow Takeoff for Young Workers

My office is on a college campus, so it's especially hard to avoid noticing that the class of '13 is going to graduate into a difficult job market, as did their predecessors in the classes of '12, '11, '10, '09, and '08. Indeed, colleges and universities are now experiencing a situation in which freshmen arrived in a lousy job market, heard all about the lousy job market for four years of college, and then graduated into a lousy job market. When one hears complaints either about the excessively high cost of college education or about the overly careerist instincts of recent college cohorts, it's worth remembering that many of them have experienced subpar labor market rewards from their college degree in recent years. Anthony P. Carnevale,
Andrew R. Hanson, and Artem Gulish explore these issues in their report  Failure to Launch: Structural Shift and the New Lost Generation, a September 2013 report from the Georgetown Public Policy Institute. Here are a few of the figures that jumped out at me.

The proportion of young people in the labor market is dropping, while the share of older people int he labor market is rising. This figure shows that back in 1980, about 50% of all 18 year-olds were in the labor market; by 2012, it was about 30%. However, those in their 50s, 60s, and older are more likely to be in the labor market than they were in 1980.

In fact, the share of young people in the labor market has fallen to a 40-year low. While the decline has been especially pronounced in recent years, it clearly dates back several decades. The usual explanation is a combination of a positive and a negative factor. The positive factor is that more young people are attending colleges and universities, and so are not in the labor force in their early 20s. The negative factor is that the kinds of jobs that were were available to those without a college degree back in the 1960s and 1970s--blue-collar jobs with significant skills that offered the prospect of lifelong economic advancement--have become increasingly scarce.

Today's young adults are getting a slower start on adult life. I As a result, it is taking young people longer to start climbing the career ladder. This graph shows the earnings of someone at each age level compared to median earnings, for 1980 and for 2012. In 1980, for example the typical 18 year-old had earnings that were about one-quarter of the median income, but the typical 26 year-old had earnings that were equal to the median income. However, in 1980 earnings dropped off quite sharply when people reached their early 60s. In 2012, the typical workers reach the median level of earnings until age 30--four years later than their counterparts in 1980.And in 2012, while wages still drop off when people reach their early 60s, the decline is not as rapid or as far.

And of course, a later start on careers is also one of the reasons why people are getting married later and starting families later. Carnevale, Hanson, and  Gulish write: " Evolving social norms entangled with economic hardships have led young people to delay household and family formation. Two-thirds of young adults in their 20s cohabitate; the average age of  marriage increased from 21 to 26 for women and 23 to 28 for men between 1970 and 2006. Over  the same period, the average age of a mother at the birth of her first child increased from 21 to 25. In 1960, three out of four women and two out of three men completed school, left home, achieved financial independence, were married and had children by age 30. In 2000, less than half of women and only one-third of men reached the same milestones by age 30."

There is a lot to be said for marrying and having children a little later in life. I married at age 30 and had my first child at age 37. But when I visit with friends my age whose children have already graduate from college, or when I coach youth soccer games on creaky knees, I recognize that a slower takeoff to adulthood has its tradeoffs, too.

Wealth Patterns and Retirement Readiness

Throughout the grim economic statistics of the last five years, I've felt especially badly for three groups: those who have been unemployed at a time when finding a job has been so tough; young people trying to get a foothold in the stagnant labor market; and those who were near or into retirement. This last group is old enough that spending many more years in the labor market wasn't a realistic option, even if jobs had been available. Meanwhile, they saw the value of their retirement nest eggs slashed by falling house and stock prices, and have watched while their savings and money market accounts brought them only ultra-low interest rates. LaVaughn Henry offers some evidence on these points in "Are Households Saving Enough for a Secure Retirement?" an "Economic Commentary" written for the Federal Reserve Bank of Cleveland.

One rough-and-ready measure of how older generations are doing is to look at the accumulation of national wealth. Here's actual household wealth, with the brown line showing the actual pattern and the green line showing a steady-growth trend over time. Notice that wealth went above trend in the dot-com boom of the late 1990s, but at the end of that period wealth returned to more-or-less the long-term trend. However, in the housing bubble of the mid-2000s, household wealth not only went further above trend, but then fell to well below trend and has been slower to rebound.

How do wealth patterns look for near-retirement Americans in particular? This graph shows the ratio of wealth-to-income for four different age groups at three different years. Clearly, those in the 55-64 age bracket were feeling a lot better about their retirement prospects in 2007 than they were in 2010.

Although a quick glance at this figure might suggest that older Americans as a group are just as well-prepared for retirement as they were back in 1983, this conclusion would be too quick. As Henry points out, wealth-to-income ratios for the elderly should probably be higher now than in the early 1980s for three reasons. First, people are living longer, so they need more wealth when they retire. Second, back in the early 1980s, a larger share of the US workforce had "defined benefit" pension plans, in which an employer promised to pay them a certain amount that was not counted as part of their own household wealth.  Now more people have "defined contribution" plans, where your retirement funds are stored up in your own 401k or IRS account, which does count as part of your household wealth. Thus, retirees are more dependent on their own household wealth than they were three decades ago. Third, interest rates right now are historically very low, so retirees need more wealth to generate the income that they would have expected if interest rates were higher.

Finally, what share of retirees have saved enough to sustain their consumption patterns in retirement. Here, Henry turns to calculations from Alicia H. Munnell, Anthony Webb, and Francesca Golub-Sass at the Center for Retirement Research at Boston College called that they call the National Retirement Risk Index (for example, see here). They seek first to calculate how much income people will need in retirement, and then whether people have enough in savings to meet that goal. As they explain: "A commonly used
benchmark is the replacement rate needed to allow households to maintain their pre-retirement standard
of living in retirement. People clearly need less than their full pre-retirement income to maintain this
standard once they stop working since they pay less in taxes, no longer need to save for retirement, and often have paid off their mortgage. Thus, a greater share of their income is available for spending." Using this measure, Henry presents a figure showing the share of households at age 65 that are at least 10% short of meeting this target. This particular rule is of course somewhat arbitrary, but the results are likely to look much the same for any given rule: that is, those in the 1980s were more likely to be ready for retirement than those in the 1990s; those in the 1990s were more likely to be ready for retirement than those in the 2000s; and those in 2010 were least likely of all to be ready for retirement.

There's an argument for another day about how to encourage people to save more for retirement during their working lives, but that argument isn't especially relevant to those who are already at the edge of retirement or already retired. Planning for retirement is an especially difficult economic decision because we get just one chance to do it; no one gets to live their life multiple times, trying out different patterns of saving and investment each time. And if you happen to be retiring just when the economy enters an epic slump, it's bad luck.

Fiscal Policy: How Has Conventional Wisdom Changed?

The last five years have brought economic policies that I would not have thought were even remotely possible if you had asked me in, say, mid-2007. The Federal Reserve and other central banks of high-income countries would push their policy-target interest rates to near-zero, and hold the rates there for years on end, while printing money to buy government debt? I wouldn't have believed it. The U.S. government would run budget deficits of 10.1% of GDP, 9.0% of GDP, 8.7% of GDP, and 7.0% of GDP in consecutive years, raising the debt/GDP ratio over that time from 40.5% in 2008 to 72.6% in 2012? I wouldn't have believed it. An IMF staff team led by Bernardin Akitoby offers some thoughts on how conventional wisdom about fiscal policy has change in the last five years in a September 2013 Policy Paper, "Reassessing the Role and Modalities of Fiscal Policy in Advanced Economies."

What was the consensus view on fiscal policy back in the Stone Ages of 2007? The IMF report reminds us (as usual, footnotes and citations omitted): "The prevailing consensus before the crisis was that discretionary fiscal policy had a  limited role to play in fighting recessions. The focus of fiscal policy in advanced economies was often on the achievement of medium- to long-run goals such as raising national saving, external rebalancing, and maintaining long-run fiscal and debt sustainability given looming demographic spending pressures. For the management of business cycle fluctuations, monetary policy was seen as the central macroeconomic policy tool. Fiscal contraction was sometimes recommended during periods of economic overheating as a means of supporting monetary policy, for example to take pressure off the exchange rate in the face of persistent capital inflows. However, during downturns, it was deemed that there was little reason to use another instrument beyond monetary policy."

But when the Great Recession hit, this consensus wisdom went out the window in a hurry, not just in the U.S. economy but across the high-income countries of the world. Here's a figure comparing the usual rise in the debt/GDP ratio after a recession (the blue dashed line) with what has actually happened in advanced economies since the recession (the red line). The U.S. economy, with a rise in the debt/GDP ratio of just over 30 percentage points, is just about on the average of how high-income countries have expanded their government debt since the Great Recession.

What lessons have we learned about fiscal policy during this period? Here are a few suggested by the IMF:

1) Of course, one main reason that so many governments raised their debt/GDP ratios so much was that the Great Recession was so ferocious. Advanced economies are apparently more vulnerable to severe downturns than most would have believed five years ago. In particular, financial imbalances, asset bubbles, housing and credit booms, and other risks were more severe that expected. . They write: "The fiscal risks created by large  (relative to GDP), growing, and interconnected financial sectors were also underappreciated, partly  because of confidence in financial markets’ capacity to self-regulate and the
opacity of cross-border exposures."

2) "[T]here is a need for a more holistic approach to measuring public debt and determining “safe’’ levels of debt." During the financial crisis, it became apparent that many governments were offering various guarantees and support to their financial sector that would not have been counted as "government debt" back in 2007, but turned into government debt very quickly when the crisis hit. "For example, in the United
States, potential contingent liabilities stemming from the debt of government-related enterprises is
estimated to exceed 50 percent of GDP ..." Official measurements of debt also don't take into account future promises for funding government programs, like providing support to the elderly.

3) In some "safe havens (Japan and the United States, for example), markets can tolerate much higher debt ratios than previously thought, at least for a time."

4) In other advanced economies, high government debt can lead to a  harmful "soverign debt feedback loop." Within a given country, banks typically hold a lot of debt from the government of that same country. If the government piles up so much debt that it begins to look risky, then the banks of that country have a lot of assets that look risky. But if the government is to step in and rescue the banks, it will pile up more debt, which will make the banks look even riskier. See the recent history of Greece for how this story unfolds.

5) "While debate continues, the evidence seems stronger than before the crisis that fiscal policy can, under today’s special circumstances, have powerful effects on the economy in the short run. In particular, there is even stronger evidence than before that fiscal multipliers are larger when monetary policy is constrained by the zero lower bound (ZLB) on nominal interest rates, the financial sector is weak, or the economy is in a slump ..Earlier research often assumed that the impact of fiscal policy was similar across different states of the economy, but a number of recent empirical studies suggest that fiscal multipliers may be larger during periods of slack. ...The crisis has not offered conclusive lessons regarding the relative size of revenue and
government spending multipliers. Some recent studies suggest that spending multipliers are larger than revenue multipliers, while others reach the opposite conclusion ... "

6) Fiscal policy operates through automatic stabilizers and through discretionary policy. The automatic stabiliizers come into being because when an economy contracts, the reduction in  economic activity automatically leads to lower tax revenues and to more people eligible for government spending support--without any new legislation. (For more detail on automatic stabilizers, see here.) Discretionary fiscal policy consists of the additional tax cuts or spending increases that required new legislation. Here's the division of automatic and discretionary policy across some high-income countries. In the US, for example, automatic stabilizers were about 2/3 of the deficits in 2009-2010, and discretionary policy was the other third.

7) "The fundamental challenge facing policymakers today is to reduce deficits and debt levels in a way that ensures stability but is sufficiently supportive of short-term economic growth, employment, and equity. ...As mere promises to undertake fiscal adjustment later may not be persuasive, gradual consolidation needs to be anchored in a credible medium-term plan.

The US Transportation Sector

The transportation of people and goods is in many ways a necessary evil. You rarely hear any person outside of car company advertisements bemoaning that their commute to work is too short, or that they wish it took a little longer to pick up bread and milk at the grocery. You never hear a business exalting that getting some parts or inputs from a distant location took especially long or required an especially high cost. Of course, there are sensible reasons why not all economic activity happens at one location and most people do not live immediately beside where they work; in effect, transportation is the cost we pay for the benefits that arise from this diversity of locations.  Clifford Winston writes "On the Performance of the U.S. Transportation System: Caution Ahead," in the most recent issue of the Journal of Economic Literature (51: 3, pp. 773–824). (Full disclosure: The JEL is a sibling journal of the Journal of Economic Perspectives, where I work, both published by the American Economic Association. The JEL is not freely available on-line, but many in academia will have access through library subscriptions or through their AEA membership.)

Winston summarizes some facts about the sheer size of the US transportation sector in 2007 an eye-opening paragraph (as usual, footnotes and references are omitted for readability):

"[C]onsumers spent $1.1 trillion on gasoline and vehicles commuting to work, traveling to perform household chores and to access entertainment, and traveling for  business and vacations, and spent an astronomical 175 billion hours in transit, which averages out to about 100 minutes per day for each and every American,valued at some $760 billion. Firms spent $1 trillion shipping products using their own and for-hire transportation, while the commodities that were shipped absorbed 25 billion ton-days in transit, valued at roughly $2.2 trillion. Local, state, and federal government spending on transportation infrastructure and services contributed an additional $260 billion,  bringing total pecuniary spending on transportation up to 2.4 trillion, or 17 percent of  GDP in 2007, which is as much as Americans spent on health care, and total annual money and time expenditures to more than $5 trillion! Finally, transportation looms large in American life because both the public and private sector have made huge investments in the transportation capital stock, which (after deducting depreciation) is valued by the U.S. Department of Commerce at nearly $4 trillion ..."

Many of these costs are not immediately apparent. After all, the transportation costs of firms are not costs that most of us see directly, but instead costs that are wrapped into the final cost of goods and services. The costs of time spent in traffic are not monetary costs. The link from transportation capital stock paid for in is government budgets and the tax revenues that ultimately support such spending is not especially clear.

Our public conversation about transportation policy often boils down to a claim that more government spending is good: fix and expand the road system, fix the bridges, build more mass transit, and so on. The transportation legislation that emerges from Congress every few years is perhaps the classic case of pork-barrel spending, usually with juicy tidbits for almost every legislative district. As one might expect, Winston takes a disciplined perspective: how can we set up institutions so that the transportation system works more efficiently, and so that additional infrastructure spending occurs when benefits are balanced against the costs, in a way that makes society more likely to focus on projects that have a higher payoff.  Some of the possibilities that go beyond pouring more concrete include:

• Cars should be charged for driving during times when traffic is congested. When you drive during a time when congestion is high, you of course experience the costs of having lots of other drivers on the road. But you also play a role in imposing those costs of time and delay on others. 
• Most big cities charge too little for street parking, at least during peak times For economists, when street parking is all taken for blocks around, and people are cruising the streets looking for a spot, it seems clear that the quantity of parking demanded is exceeding the quantity supplied at the existing price--and so the price should rise. 
• "The gasoline tax that truckers are charged for highway travel does not adequately account for their damage to pavements because that damage depends on a truck’s weight per axle (for a given weight, trucks with more axles inflict less pavement damage) and for their stress on bridges, which  depends on a truck’s total weight." Higher charges would provide an incentive to use trucks with more axles, which would save wear and tear on roads and bridges. 
• "The charge that an aircraft pays public airports to land (they are not charged to take off) is based on its weight and generally does not  vary by time of day. But the volume of aircraft traffic, which determines the length of time that a plane must wait on the ground or in the air, does. Efficient takeoff and landing (marginal cost) congestion charges that vary by time of day could significantly reduce air travel delays, generating a $6.3 billion annual welfare gain, accounting for the time savings to travelers and reduced operating costs to airlines ..."
• "[U]sers of urban bus and rail transit pay fares that are set by transit authorities below marginal cost, some even ride at discounts from those fares, and some federal employees ride free. As pointed out later, such subsidies are hard to justify on distributional grounds because transit users generally live in households with incomes that are above the national average ..."
• "Most highways in major metropolitan areas operate under congested conditions during much of the day, yet highway design standards are based on free-flow travel speeds. Policymakers could therefore reduce the cost of delays by expanding the range of alternative highway designs that, for example, could raise speeds during peak travel periods by increasing the number of lanes, although speeds during off-peak travel periods may be slower because lanes and shoulder widths would be narrower. Technology exists to install lane dividers that can be illuminated so that they are visible to motorists and that can be adjusted to increase or decrease the number of lanes that are available in response to traffic volume."
• "[I]nvestments in highway durability—that is, pavement thickness—should minimize the sum of initial capital and ongoing maintenance costs. They determined that building roads with thicker pavement at an annualized cost of $3.7 billion would generate an annualized maintenance saving of almost 4 times as much—$14.4 billion—for a net annual welfare gain of $10.7 billion. Roads could also be made more durable by implementing innovations such as tack coats between pavement levels and thicker bottom layers of asphalt to avoid buckling, both of which can extend the functional life of a highway at little extra cost. But state departments of transportation award construction contracts on the basis of the minimum bid, not on the technological sophistication of the contractor ..."

For many economists, suggestions like these sound obvious. For many non-economists, they sound near-heretical, because they don't involve large government spending programs to pour concrete, lay railroad track, expand seaports and airports, and the like. Winston is by no means opposed to additional infrastructure spending, but he seeks to turn the conversation toward how the existing transportation grid can be used more efficiently, and how the all-too-real costs of potential infrastructure expansions can be fairly evaluated along with the potential benefits. After all, we know that government involvement in the airline industry led over many decades from the 1930s up through the 1970s to a strangling of competition, high profits for airlines, and high fares for consumers. We know that government management and ownership of many mass transit systems around the country has led to systems that are not covering even their marginal costs, and seem to require ever-higher subsidies. We know that the existing government methods of funding repair of roads and bridges has allowed many of them to fall into serious disrepair. The US transportation sector is the outcome of a large number of decisions about building and pricing, many of the them either made for short-term political reasons or just unexamined. It needs a conceptual shake-up. 

At Least It's Not Still 59 Cents

Back when I was in college in the late 1970s and early 1980s, it was typical to hear that women earned 59 cents for every $1 earned by men. The figure below, taken from the September 2013 Census Bureau report on "Income, Poverty, and Health Insurance Coverage in the United States: 2012," by Carmen DeNavas-Walt, Bernadette D. Proctor,and  Jessica C. Smith, shows why 59 cents had such force. Looking back for 20 years through the 1960s and the 1970s, the ratio of median earnings for a full-time female work to that of a full-time male worker had hovered at around 59 cents--despite what seemed to be enormous changes in the role of women in the workforce during this time.

A standard explanation for the seeming stability of the 59 cents during the 1960s and 1970s was that there were two opposing patterns at work as women entered the paid workforce in large numbers. The labor force participation rate for women rose from 38% in 1960 to about 51% by 1980. Many women were gaining experience and credentials in the paid workforce, which should have tended to push up the ratio of female/male wages, but many of the women who were entering the paid workforce for the first time were taking low-paid entry-level jobs, which tended to pull down the ratio of female/male wages. During the 1960s and 1970s, these factors largely offset each other.

I can report that this argument was not a popular one for a male economics major to make during  his college days in the early 1980s. (And yes, I was careful to point out that the story of counterbalancing forces had no particular implication for how much gender discrimination continued to exist.) But the story did have a testable implication: after the process of women entering the paid workforce for the first time had largely run its course, then the effect of women having more experience and credentials should dominate and the female/male wage ratio would rise. Indeed, the female/male earnings ratio did start rising right around 1980, and now stands at 77%.

Thus, the good news in terms of pay equity is that at least it's still not 59 cents for every $1. The ongoing issue is how to explain the remaining wage gap, and there's considerable controversy on this point. For example, if one adjusts for the industry in which people work, or the kinds of jobs they do, the female/male wage gap looks smaller. But what if those industries and jobs and the pay levels in those industries and job choices are themselves, at least to some extent, the result of patterns of unequal treatment by gender?

It does seem clear that a substantial share of the remaining gender gap is due to women's taking a greater share of responsibility for children in particular. For example, here's a 1998 article  by Jane Waldfogel in the Journal of Economic Perspectives (where I've been the managing editor since 1987) looking at this "family gap."  Of course, this then leads to an argument over the extent to which women are choosing these responsibilities and the extent to which these responsibilities are being forced upon them. Perhaps scarred by my college exposure to these issues, I'll duck that question here, and just note that other countries have far more extensive parental leave rules than does the United States. The evidence on the female/male wage gap seems consistent with an overall pattern that outright discrimination by employers in labor markets has diminished, and today the larger reason underlying the female/male wage gap are social expectations and pressures from both men and women about industry and job choices, and about how the tasks of child-raising will be divided.

One statistical  note here: The figure shows the ratio of median wages, not average wages. For the uninitiated, the median is the number where half have more and half have less. If those at the top of the income distribution get more, while everyone else remains the same, then the average income level will rise, but the median will not. The median is often more useful for getting a sense of the "typical" worker in the middle of the overall income distribution, which is why it is used here, but it would be incorrect to look at the median and conclude that average wages have not risen. Indeed, I assume that men substantially outnumber in the top 1% or the top 10% of the earning distribution, and so the focus here on median earnings will in that way understate the amount of gender inequality remaining.

Shipping the Good Apples Out

A couple of years ago, I found myself standing in a grocery store in Boston, waiting for the person behind the counter to make me a cheesesteak hoagie. I noticed that I was near the meat section of the grocery, and as a Minnesota person, I wandered over to sightsee the seafood. The seafood was quite reasonably priced by Midwestern standards, but when I looked more closely at the labels, the scallops and shrimp and a lot of the fish it had been imported from China and the far East.

Have you ever found yourself in an area which is well-known for some local product, but that local product--at least in its highest quality version--doesn't seem available in local stores or restaurants? Here's an economic explanation for that phenomenon taken from the World Trade Report 2013 from the World Trade Organization, based on the effects of per-unit transportation costs. The report discusses:

The mysterious case of the missing delicious red apples

"Before it became associated with corporate behemoths like Amazon, Boeing, Microsoft and Starbucks, as well as the cultural phenomenon that was grunge music, the US state of Washington was famous for its apples. To some irate state residents though, it appeared that only the small and old-looking ones remained in the state, while all the red and delicious apples were being shipped out of state. To the state residents who wrote to their local newspaper the Seattle Times expressing their disappointment, it was a mystery that had no obvious explanation.

However, the answer to this mystery had long been part of the lore in the economics department at the University of Washington and was even part of classroom discussions and exams. The answer to the mystery relied on the fact that a per unit transportation charge applicable to both high-quality and low-quality products lowers the relative price of the high-quality product at the point of destination. This leads consumers at the destination to purchase a greater proportion of the high-quality product than consumers in the place of origin. The explanation provided by the economists of the University of Washington to the readers of the 28 October 1975 edition of the Seattle Times is reproduced below:

“Suppose, for example, a good apple costs 10 cents and a poor apple 5 cents locally. Then, since the decision to eat one good apple costs the same as eating two poor apples, we can say that a good apple in essence costs two poor apples. Two good apples cost four poor apples. Suppose now that it costs 5 cents per apple (any apple) to ship apples East. Then, in the East, good apples will cost 15 cents each and poor ones 10 cents each. But now eating two good apples will cost three, not four poor apples. Though both prices are higher, good apples have become relatively cheaper, and a higher percentage of good apples will be consumed in the East than here. It is no conspiracy, just the law of demand.”

The reference to "economists at the University of Washington" refers to an 1978 article by Thomas E. Borcherding and Eugene Silberberg, “Shipping the Good Apples Out: The Alchian and Allen Theorem Reconsidered," which was published in the Journal of Political Economy (February, pp. 131–38). As their title implies, Borcherding and Silberberg were drawing on a classic examples from the 1964 University Economics textbook by Armen Alchian and William Allen. That book offers a parallel example of high-quality grapes at 10 cents per pound, low-quality grapes at 5 cents a pound and a shipping cost of 5 cents per pound. The overall hypothesis is that when a fixed cost (like a per unit transportation cost) is added to two substitute goods, the user will tend to substitute toward the higher-quality good. (In the jargon, adding the fixed cost to both goods means that the opportunity cost of consuming the high-quality good, expressed in terms of the low-quality good, is lower.)

This thesis has been good fodder for argument ever since. For example, good restaurants in Boston do have excellent lobsters. Borcherding and Silberberg argued that this tends to support the Alchian and Allen hypothesis, because "it does not matter if the goods are shipped to the consumers or the consumers are shipped to the goods." The key distinction here is whether natives and those buying at roadside stands or local groceries typically end up with lower-quality lobsters than those eating at restaurants that cater to tourists.

If you're interested in delving into the more recent research literature here, a useful starting point is the paper by David Hummels and Alexandre Skiba, "An Empirical Confirmation of the Alchian‐Allen Conjecture," published in the December 2004 issue of the Journal of Political Economy (112:6, pp. 1384-1404).