One of the silliest illusions which has mesmerized the American people is the conflation of income and wealth. They are two topics that are, of course, intertwined (and correlated) – but not necessarily good proxies for each other.
Admit it – when you woke up today you asked yourself this very question – “is it better to go to college or to become a truck driver?“. Well, so did we here at DQYDJ. Inspired by a Twitter conversation from our friends JT at MoneyMamba and Matt Allen at Rambling Fever, we had to ask… how much do recently minted college graduates make when compared to their truck driving contemporaries? I think we can fairly classify this as an ‘epic post’ – make sure you fully understand my methodology before complaining… then complain all you want in my comments section!
Thomas Jefferson once said, “I’m a great believer in luck, and I find the harder I work the more I have of it.” Wise words from a man who died with the equivalent of $1,000,000 in today’s dollars worth of debt – but his words still ring true today. I wrote this article on a whim when I tried to find data on the amount of hours worked per week broken down by individual income. Let me save you some time; that data is nowhere to be found. I can tell you this… the average American private sector worker works 34.3 hours in an week. I can also tell you that the average American worker making an income from $100,000 to $149,999 puts in 45.09 hours in a usual week, 34.3% more than the average worker making between $10,000 and $19,999. So I ask you, dear reader, how many hours a week do you work?
Substitution and Income Effect: These two terms are very familiar to anybody who has taken an intermediate course in macroeconomics. With the recent articles regarding volunteerism and labor statistics, I thought that it was very timely to write on these two very important concepts.
Let’s start with a thought experiment: if you were to receive a 10% increase in your hourly wage, would you increase, decrease, or maintain your hours worked? Believe it or not, any answer is correct, despite many assumptions regarding the positive slope of labor supply curves. The reason that any answer is correct lies in an understanding of substitution and income effects.
Oftentimes the best place to look for value is in a place few others know to look.
Go ahead and quote that; I just made it up. Closed end funds are an often overlooked place in the market for your investment funds. CEFs are mutual funds which trade on exchanges and lack the price arbitrage functions of Exchange Traded Funds. This means that Closed End Funds can be (and often are) priced significantly differently from their underlying assets.
One of Milton Friedman’s most influential and revolutionary theories was his challenge to the traditional Keynesian consumption function, which includes simple after-tax income as a variable in the consumption. Friedman countered, however, that those who consume today take future taxes, price increases, salary increases, and other factors into account. This is summarized in his Permanent Income Hypothesis. More specifically, this counters that people consume based off of their overall estimation of future income as well as opposed to only the current after-tax income.