Random thoughts of an economist

Filled Milk

Posted in Economics, Nurse, Regulation by kafuwong on May 8, 2011

Know the various kinds of milk we have been using daily.  Sweetened milk, evaporated milk, condensed milk, fresh milk, filled milk.  I have been adding filled milk to my tea and coffee but what is filled milk?  No one at the breakfast table knows what “filled milk” is.  I cannot help to launch a search on the internet.

Yes.  Wiki (http://en.wikipedia.org/wiki/Filled_milk) gave me an answer.  “Filled milk is skim milk that has been reconstituted with fats, usually vegetable oils, from sources other than dairy cows and only exists as evaporated milk. … Coconut oil could be cheaply imported, primarily from the Philippines (at the time under American rule), and this product was able to undercut the market for evaporated and condensed milk.”

If you were a dairy farmer in the United States and had just learned that filled milk serves as a substitute to evaporated and condensed milk, what would you do?   Of course, you knew evaporated and condensed milk are made from dairy milk but filled milk is not. 

Some smart dairy farmers in the States would think, “Hmmm, this is no joke.  The filled milk is going to reduce the demand for our dairy milk.  Better to lobby the government to ban the import of filled milk from other countries, or better to ban the use of filled milk in this country.”

That was what happened according to Wikipedia (http://en.wikipedia.org/wiki/Filled_milk),

In 1923, the United States Congress banned the interstate sale of filled milk “in imitation or semblance of milk, cream, or skimmed milk” via the “Filled Milk Act” of March 4, 1923 (c. 262, 42 Stat. 1486, 21 U.S.C. §§ 61–63, in response to intense lobbying by the dairy industry, attempting to protect its market against competition by cheaper foreign fat. Many states also passed bans or restrictions on the sale and production of filled milk products.

(Also see http://www.fda.gov/RegulatoryInformation/Legislation/ucm148714.htm.)

Who suffered?  Who benefited from this regulation?  Which States passed bans or restriction on the sale and production of filled milk products?  I will let you figure them out.  

Now change “filled milk” to “medical doctors”, “nurses”, “teachers”, “lawyers” etc., and rewrite the story above so that the new story will make sense to Hong Kong — which has been named the freest economy 17 years in a row by Heritage Foundation (http://www.heritage.org/index/).

Why don’t we ever have a shortage of economists in Hong Kong?

Posted in Economics, Hong Kong, Nurse, Regulation by kafuwong on April 20, 2010

When a firm needs to hire an (additional) economist to work in Hong Kong, it will advertise for the post.  Of course, after searching for a while, the firm may claim that there is a shortage of economists in Hong Kong but the cause is really that the firm is not willing to pay the competitive remuneration package. If the remuneration package is attractive enough, the post will be filled — may it be from Hong Kong, or from other parts of the world. 

If local firms are forbidden to hire economists from the other parts of the world, what do you expect the remuneration package to economists in Hong Kong?   The restriction reduces the supply of economists (smaller than the one when we are allowed to hire foreign economists), and hence will likely result in a higher salary than otherwise.  Thus, economists would like to establish such restriction.    The question is how to accomplish this.  Restriction by residence (i.e., the applicants has to be Hong Kong residents who have lived at least seven years in Hong Kong)?  Restriction by ethnicity (say, Chinese)?  Restriction by the language of which we speak (say, cantonese)?  Restriction by the country from which we get the qualification (say, University of Hong Kong)?  Which restriction is more appealing? 

No one ever claims there is a shortage of economists in Hong Kong —  likely because the market for economists is not regulated. 

There is a recent claim that we have a shortage of nurses in Hong Kong.  (For example, see the 2008 Hong Kong Standard report:  http://www.thestandard.com.hk/news_detail.asp?pp_cat=11&art_id=60519&sid=17059699&con_type=1.)   Our discussion of the market for economists suggests that the shortage of nurses must be due to some kind of regulations. 

What are these regulations?  First, the goverment, Hong Kong’s biggest employer of nurse, sets the salary.  The other employers follow the government’s salary scale, and possibly with a upward adjustment.  The shortage reflects the salary set by the government is lower than the market clearing level.  Second, the workers can only come from the several local training institutions, restricting supply. 

Obviously, there are two possible solutions: adjustment of the salary and allowing import of labor.  In the same vein of the latter, today’s South China Morning Post editorial (2010-4-20) suggested to import nurses from Phillipines: “What matters beyond nursing skills is language — and that can be taught.  Nationality and ethnicity should be irrelevant as long as they can do the job.”  I like it.