2¢ of job market advice

Last week, students at LSE organised a session in which the job marketeers of this year were supposed to pour their wisdom over the younger generation. I was happy to be on the panel and ramble about my job market experience. But it's always better to write things down, so I decided to write down my two cents on the economics job market.

Already, many manuals exist to cover almost every aspect of the market. The most useful ones for me were John Cawley's manual, David Laibson's tips and a collection from Chicago. I don't want to repeat what's said in there, and so will only add some things here and there.

For the record, I made138 applications, and got 28 interviews, 11 flyouts, and 5 offers. I applied in the US, Europe, and Singapore, and to academic, policy and private sector openings.

WARNING: Most of the stuff here will sound plain obvious. But once one is in the job market tunnel, the perception of reality can get quite distorted; and even what is obvious in the mind is not always easily followed through (that was my experience at least).

Preparation

The most important part about the job market is to be as well prepared as possible. That mainly means to work hard. Especially for us Europeans with our entitlement mentality ("If I can't go on a holiday twice a year life is so cold and empty") it can be a challenge. I certainly started putting in the hours way too late in my PhD. Regardless of how good your paper is, there are people out there with another paper that's just as good as yours, but who put in 10 hours a week more in the next months.
Being prepared also means to have your letter writers in place as early as possible. I really didn't believe how much it matters to have faculty who don't only write good letters but will also make calls for you. It's safe to say that my recommenders had at least written a personal email to almost every place where I got an interview. Get people who have a network and who like you, and make sure to leave as good an impression on them as you can.
Also, being prepared means to stop working on your paper at some point. At the beginning of the summer, make a realistic outline of what you can still accomplish until September. Focus on those things, and when September comes, stop what you are doing and put all your energy into just polishing the text. Get your paper read by as many people as possible. Get your application materials together, then start practising interviews and presentations. The return on this is much higher than that from adding the n-th wrinkle to your paper. Do practice interviews twice as much as you think is necessary, especially with people who don't know your research.
Should you go to the Spanish/British/Canadian/... job market conference on top of the AEA? I think you should unless you really don't want to go to Spain/Canada/the UK (but then why have you applied there in the first place...). You may end up having no interviews there, but it is good practice and even a small probability of getting that interview which gives you the job justifies the flight and hotel expenses. I actually went to the Spanish meeting with zero interviews, so I mainly just hung around the place. I felt really anxious that I would fail my job market since my friends had several interviews. But in the end the noise is really large and I had a good number of interviews in Boston. So don't freak out if that happens to you.

Attitude

The most important advice I got was: Stop acting like a student! In my case, that meant to not be apologetic about the flaws of my research, and also to answer questions concisely. When you're on the market, you don't have to convince anyone that you know economics. So when you're asked "Why are markets are incomplete in your model?", don't start off with "Complete markets imply that there exists a set of securities that are traded competitively and whose payoff structure spans all states of the world"... this is not an exam and you will end up annoying people. Just say "Because only nominal assets can be traded." If the person asking you wants to know more, they will say so.
So what should you act like instead? I found it most helpful to imagine that you are the founder of your own startup. The product of your startup is your research, your headcount is one, and no one has ever heard of you. Which means that you have to sell, sell, sell.
To sell anything, you need people to like you. So whether it is during interviews or on flyouts, always appear friendly, confident and relaxed. Pretend you're having a great time on the outside while being  scared to death on the inside. Start talking enthusiastically about your work even with your friends to get used to selling yourself. Personality matters. Standing in an elevator in Boston, I overheard interviewers in say: "I really like her because she was so humble, that really fits our department". They didn't talk about her paper.
There's of course a fine line to walk: don't be too timid, but also not too aggressive. When people are under stress, they tend to be one or the other - you know best in which direction you have to correct yourself.
Also, talk to everyone, before, during and after the interviews. You never know what it will be good for. In another elevator in Boston, I struck a random conversation with a guy who turned out to be from the Bank of England. I gave him my 30-second spiel and he liked it and gave me his card. When I didn't get a flyout from the BoE, I emailed him again and got a flyout invitation the next day.

Interviews

The key to interviews is to be well prepared. I met a guy in Boston who said: "It's so great to be on the job market - all these smart people reading and commenting on your work. In every interview, someone makes a comment about my paper that I haven't thought about yet - that's so different from my university!" That is not the right attitude. Learn the answers to the 30 most frequent questions people have about your paper. If you don't have a good answer, just say "I know this is an issue that I haven't resolved yet, but I'm working on it." That's still better than to be surprised by the question.
There are already tons of advice on interview preparation. The most useful for me was to structure the spiel into 3 loops of 30 seconds, 4.5 minutes and 10 minutes, and to repeat the main points of the paper throughout the thing, so that someone who stares out of the window for three minutes can still tune in again. Most people will interrupt you pretty quickly, but I also had one interview where I basically had to do a monologue for 30 minutes (and they still gave me the flyout).
If you are well prepared, then you have nothing to fear about the interviews. Most of them will be surprisingly pleasant. But you must always sell yourself. To do that, you must tell people what they want to hear. For most places you will interview at, people will want to hear why you would accept their offer. So when you interview with a university in Sydney, tell them why you love academia and the great time you had in Australia last summer, and when you interview with a central Bank in Europe, tell them how great it is to combine research and policy and why you want to stay close to your family. Have answers ready for each institution - some explicitly ask about it ("If you had an offer from X, would you still accept ours?"). It's like with selling washing-up liquid: everyone knows it cannot remove the hard grease and protect your hands at the same time, but if it doesn't promise both people still don't buy it.
Yet, there is a limit to selling in interviews (and anywhere else): never lie. You don't want to risk your reputation. I put on my C.V. that I was fluent in French, so one school decided they would put me on the spot and do the first ten minutes of the interview in French. If I hadn't been able to do it, people might have started talking about me as the guy who lies on his C.V. So don't make things up. 
Also, know the institutions well for which you apply. One interviewer kicked off with: "Before I ask you about yourself, tell us what you know about our university". I completely flunked that one, don't repeat the mistake.
Have all important information on paper during the AEA (and during flyouts). Paper is your friend. All your electronic gadgets can run out of power, the Wifi can fail, but the paper is always there.
Finally, don't compromise on health. Sleep well every night, relax from time to time, don't catch a cold on the Christmas hike with your family (I did that and had to raid a pharmacy to get back in shape on time).

Flyouts and offers

Most of the things that apply to the interview stage also apply to the flyout stage. In particular, get enough sleep, because flyout days are exhausting: you meet many people you have never seen before and make conversation with them, talk about your paper, present, and have dinner, and the only time you can catch your breath is in the bathroom break. Bring attire to fit any possible weather and temperature condition.
Scheduling your flyouts wisely can really matter. I don't think there are particular rules that fit everyone here, but you just have to keep in mind that you will get offers in one to three weeks after your flyout. So if your top choice flyout is in late February and you get an offer in January you might be in trouble. Extending offer deadlines is sometimes possible, and by all means ask for it, but don't count on it. On the other hand, how early the institution is offering you a flyout is a (noisy) signal about your chances of gettting hired. If you are flying out very late, chances are someone else has already been there and took the job. This can work in your favour as well: One institution offered to fly me out in mid February, but as I was going to be in the same city in January they rescheduled it. That was the job I eventually took.
For the offer stage, I can only say that once you have an offer you can be bold. Getting an offer starts this sweet period of time when you can ask them for virtually anything (unless it's really outrageous). If they are not willing to top up the offer they are going to say so, no hard feelings.

Off-market openings

A final word on positions that are not advertised on the job market (mainly private sector jobs and some policy positions outside the US). I also applied to those but the results were not great, simply for the reason that the timeline of the official job market will impose itself mightily on you. I had an interview with a London investment bank in November which I thought would be my fallback option, but it turned out they needed to fill the position before January, so that didn't work out. The interview was fun though, it was basically a one-hour Bloomberg TV style questioning about the Eurozone crisis. I also interviewed with a European central bank whose recruitment process was so slow that I only got invited for the flyout in May, when the entire market had already cleared. So it's a bit random. Also be prepared that those firms or institutions that don't know about the job market will press you a lot harder about your motivation. Be prepared to have a longish discussion about why you really want to go to the private sector instead of academia.


That's all I had to say. Luckily for us economists, everyone gets a job in the end.

Tesco vouchers

If you buy your groceries in one of the big supermarket chains in the United Kingdom, you will be familiar with this kind of slip:

This is a voucher you get at the (often automated) cashier after you have paid. It tells you that some of the products you just purchased would have been cheaper at a competitor grocery chain. Because Tesco is very generous and cares about you, they give you back the difference - as a voucher. You can redeem it at your next trip to Tesco. The only catch is that you can redeem it only starting tomorrow and not further than one month from now.

When the automated cashier coughed up one of those for the first time, I couldn't help but feel ripped off. I can't help but think: If you really care about me, the customer, then just give me the money right now! No, these vouchers are designed to shrewdly extract surplus from consumers on a very large scale.

I'm not a microeconomist, so I'm struggling to put adequate structure on this. Here's what I think these vouchers do.

First of all, this is a situation in which Tesco does lower its price on its products, but at the same time borrows money from me by issuing an IOU that doesn't pay interest. Is this a large cost? Suppose first that we lived in a world in which such IOUs could be freely traded without frictions. So even if I didn't want to go to Tesco tomorrow, I could simply trade my voucher with my neighbour for cash. This way, I would only effectively have lent money to Tesco for one day. Not a big deal for me as a consumer. But still a potentially big deal for Tesco. Assuming that every voucher was redeemed the next day, and that the average voucher is only 1% of the total purchase, this still means that Tesco is perpetually borrowing 1% of one day's revenue at zero interest. Not bad considering that retail profit margins are very low. It could be a noticeable effect on Tesco's cash flow figure in the quarter that they introduce the vouchers.

But we have assumed that the vouchers can be freely traded. In practice, I rarely redeem the vouchers the next day, and it has happened that I just forgot to bring them to the store so many times that they eventually expired. I have a feeling that I'm not alone with that experience. If on average customers take one week to redeem their voucher and 10% forget to do so, then Tesco is now perpetually borrowing 7% of one day's revenue at an interest rate of minus ten percent. That's not bad at all.



Then there's more to these vouchers: They effectively lock customers in to a particular grocery chain. Since I have the voucher, I have to go to Tesco again next time I buy groceries, or else I lose the money! This effect is particularly strong for people who buy their groceries infrequently. Not so much the case for the student in central London but probably more so for families with children living in less urban parts of England. Incidentally, these might be the type of customers with more price elastic demand. So what this effectively does is to reduce the price elasticity of Tesco's demand curve. It also reduces the price elasticity of the demand its competitors are facing, since there are fewer people switching chains in general (and particularly so if they also introduce vouchers). So I would not be surprised if this system sometimes raised the lowest price paid for a particular product instead of lowering it.

Finally, there's also an information story here. Tesco operates a sophisticated system that compares the prices of all of its products to its competitors to calculate the size of each voucher (you can read up on all this here). But they don't print that information on the voucher! It just says that your purchase would have been cheaper at a competitor, but not which competitor, or which were the expensive products. You can in principle find out by going on their website and punching in the serial number of your voucher, but seriously - who does that? Moreover, when one product is two pounds more expensive and the other two pounds cheaper, you get no voucher and the website is of no help either. Clearly, they find it advantageous not to tell you the specific price differences of their products upfront. Otherwise, you might just run to their competitor! Instead, you are just supposed to feel that warm glow that Tesco cares for you. This works because consumers face significant costs of information acquisition, and you can bet they will try to keep it this way.

Now you might say: Fabian, those vouchers as a matter of fact make stuff cheaper for you than before. So stop complaining already! I get that. Their competitors are not nearly as close to where I live, they have market power and are going to use it. So it's nice to see stuff is getting cheaper. But it is just so obvious that they are not competing as hard as they could. And even in lowering prices, they introduce no-trivial contracts for very simple transactions, serving no other purpose than to reduce the intensity of competition. That just reminds me of how far we are away from efficient markets.

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UPDATE: After posting this, I was told the following clever example. In a game in which every store has a price match guarantee, customers have no incentive at all to switch to competitors. This means that an equilibrium where all stores charge the monopoly price is sustainable even as a non-cooperative Nash equilibrium. No store will find it profitable to lower their price from the monopoly price because they know competitors automatically lower their prices, and all competitive pressure is removed. So it is indeed possible that the vouchers make us worse off than before.

The rise in inequality and "tiger mom" parenting

The spirit of Gary Becker can be felt in this piece by Matthias Doepke and Fabrizio Zillibotti. It's good fun to read. The central proposition is contained in this passage:

A seemingly universal area of disagreement between parents and children is the trade-off between working hard for school and for one’s career versus having fun with friends and other immediate enjoyments. Few parents wish that their kids blew off homework more often in exchange for some instant pleasure. This conflict can be interpreted as a difference in time preference – parents worry more about the long-term consequences of children’s behaviour (such as studying for school) than do the kids themselves. Hence, many parents push their children towards harder work, either through coercion (such as ‘grounding’ children, i.e., not allowing them to spend time with friends) or through sustained indoctrination with a strong work ethic and a striving for success.

The return to pushing children hard consists of the increased likelihood that they will do well later in life. How important this is to parents depends crucially on the degree of economic inequality, and in particular on the return to education. In an economy where education and effort are highly rewarded and where people with little education struggle, parents will be highly motivated to push their children hard.

Thus, we expect economic inequality to be associated with intensive (authoritarian and authoritative) parenting styles.

In contrast, in an economy where there is little inequality and artists and school dropouts earn only slightly less than doctors and engineers, parents can afford a more relaxed attitude, and permissive parenting should be more prevalent.

Now, the assertion that higher inequality implies higher returns to education is a bit vague. In fact, in some Western societies there seems to be a tendency to acquire too much formal education, where a collective move towards more learning on the job could be beneficial. But if we define education as a general set of skills that makes you fit for the working world, then the story makes a lot of sense. Times are getting tougher in developed countries, and so should parenting.

The joy of creating

Over at "Sketch Me If You Can", former LSE student Lee Zhi Wei has a great story about the joy of creating instead of following the crowd. He draws, other people write papers.

See the whole thing here.

Why Germans are not ignorant

As GDP growth in Europe has turned sour again, the opponents of austerity are getting more worried, more vocal and more angry. It's understandable. I agree with them insofar as lack of demand is probably contributing a lot to European stagnation. If there was a way to swiftly implement structural reforms in Europe and at the same time give it a sizeable fiscal stimulus, I would be in for it.

I just have doubts whether some in the anti-austerity camp are able to imagine that the German government could ever think beyond economics. For Simon Wren-Lewis, failure to implement fiscal stimulus can only be the result of either "ignorance or greed". Paul Krugman happily echoes the remarks by diagnosing a "refusal to think clearly".

A moment's pause should be enough to see that Wolfgang Schäuble or Angela Merkel are neither very ignorant nor very greedy personalities. Most politicians and businesspeople, inside and outside of Germany, outperform them on both accounts. And so the diagnosis cannot be right. It does not advance the debate about solving Europe's problems, instead catering to an audience who has already made up its mind about the issue.

Economists in general have a tendency to ignore things outside of economic theory. Instead, upon seeing some behaviour not consistent with their favourite theory, they declare people stupid. It's okay to argue something does not make economic sense. But please make an effort first to see whether it does from another angle. Does the German government believe in the "confidence fairy", in expansionary austerity? My bet is that it is well aware of the thin evidence. Is Schäuble deeply satisfied to see Italians miserable? Give me a break. The game being played is different. It is called "Reformdruck".

"Reformdruck" (pressure to reform) is a concept I don't think exists in macroeconomic theory. It has a moral hazard flavour to it, but it is really not about that. The first premise is that many European countries badly need reforms to their political and economic system. This includes the much discussed flexibility in the labour market, but also raising retirement ages, cutting taxes and red tape for businesses, and enforcing tax collection while reducing the size of the shadow economy. The second premise is that reforms only happen when the situation is dire. Political systems are inertial and reforms happen only in bad times. All reforms carry costs and those tend to be avoided until even the most ardent defender of the status quo gives up his vested interests for the greater good. The conclusion is that for Europe to prosper, some countries will have to suffer economically. Only then can the national governments in Rome, Paris, Madrid and elsewhere implement the changes that lead Europe out of the valley.

This is well illustrated with the story "Mr Keuner and the flood tide" by poet Bertold Brecht:

Mr Keuner was walking through a valley when he suddenly noticed that his feet were walking through water. Then he realised that his valley was in reality an arm of the sea and that high tide was approaching. He immediately stood still in order to look around for a boat, and he remained standing as long as he hoped to see a boat. But when no boat came in sight, he abandoned this hope and hoped that the water would stop rising. Only when the water reached his chin did he abandon even this hope and begin to swim. He had realised that he himself was a boat.

In essence, Mrs Merkel does not want to send a boat to Italy because she hopes Italy will eventually begin to swim. Note how this is not a moral hazard story. Mr Keuner is not pretending to be helpless, being simply too lazy to swim. He is just being human, not mustering the courage to change his behaviour until it becomes inevitable to do so. In Merkel's view then, I think, Italians are not simply shirking and burning German money. But they will only be able to turn their country around when the economic situation is uncomfortable.

This argument is hard to grasp with macroeconomic theory. In our models, labour-market laws and all the structural issues of the economy are one thing, and deficiency of aggregate demand is another. To a New-Keynesian model, structural deficiencies in an economy are typically exogenous and in any case taken care of by the HP-filter. By contrast, a cyclical demand deficiency can and should be adressed by monetary or, at the zero lower bound, fiscal policy. No surprise then that, for the economist living in such a world, anyone demanding structural reforms without sustaining aggregate demand must be "ignorant".

There is, however, one real danger in the pursuit of the German policy stance. Mr Keuner did not see a boat. But what if he had seen his friend on a boat, only to be turned down by him? Germany is a large boat visible to everyone in the valley of the Eurozone. Imposing "Reformdruck" is already harming the friendship with its neighbours. The long term political cost of this might be greater than what most Germans on their comfortable boat imagine.

Read your paper: this is your soul

My work is not a cold product. It is not an objective account of the research that it tries to explain. It is a window into my soul. It is the product of my care and nurture, much like a child.

It makes me a bit sad to discover this insight so close to the job market. It would have made me a better job market candidate.  Now I feel like a parent who has neglected his child for several years: the damage is not irreversible, but opportunities have been missed. I still hope that I can become a better economist and a better "parent" to my work.

Think about it. Does the economist write with great confidence about the importance of her work, or humbly suggest to point attention to an overlooked area of the field? It reveals the type of role he seeks to fulfil in life. Does he write a paper about the existence of equilibrium,  or about what an experiment in Kenya teaches us about incentives? It indicates the type of problems occupying his mind. Does he label his paragraphs "Introduction" and "The model" or "Why this matters" and "What explains return predictability"? It shows how much he cares about sticking to rules and conventions. Finally, how much effort has he put into the paper? It lays bare his life priorities.

The "content" of the paper is of course the research project it describes, and this itself reveals much about the personality of the researcher. But the writing itself reveals just as much. Are you arrogant? are you timid? Do you believe in what you write? Do you feel what you do is important? It will show in the way you write.

It took a small little book for me to realise that I have written papers not to express my ideas in the best possible way, but to conform to a scheme. My writing style was guided mostly by the desire to be accepted in the research community. But that is not a very good principal motivation. It transforms the act of writing into a kind of nuisance that is necessary to be published, but somehow separate from the "actual work". That is misguided. A better motivation is to be truthful to the ideas that drive you. This motivation will also make other people listen.

We sometimes live in the illusion that our work could somehow be separate from our private life. It is not; our personality and, yes, our soul connect the two. Writing it down is part of a larger quest that shapes our lives. It is the quest of becoming truthful to ourselves.

If you were waiting for a sign