Podcast episode

Sir David Hendry on economic forecasting & the net zero transition – EP198

Sir David Hendry, the renowned British econometrician, talks to hosts Gene Tunny and Tim Hughes about the state of economic forecasting and the transition to net zero greenhouse gas emissions. Among other things, Sir David talks about how to avoid major economic forecasting failures (e.g. UK productivity), forecasting global temperatures after volcanic eruptions, and the role of nuclear energy in the net zero transition. Sir David is currently Deputy Director of the Climate Econometrics group at Oxford. 
Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

About Sir David Hendry

Sir David F. Hendry is Deputy Director, Climate Econometrics (formerly Programme for Economic Modelling), Institute for New Economic Thinking at the Oxford Martin School and of Climate Econometrics and Senior Research Fellow, Nuffield College, Oxford University. He was previously Professor of Economics at Oxford 1982–2018, Professor of Econometrics at LSE and a Leverhulme Personal Research Professor of Economics, Oxford 1995-2000. He was Knighted in 2009; is an Honorary Vice-President and past President, Royal Economic Society; Fellow, British Academy, Royal Society of Edinburgh, Econometric Society, Academy of Social Sciences, Econometric Reviews and Journal of Econometrics; Foreign Honorary Member, American Economic Association and American Academy of Arts and Sciences; Honorary Fellow, International Institute of Forecasters and Founding Fellow, International Association for Applied Econometrics. He has received eight Honorary Doctorates, a Lifetime Achievement Award from the ESRC, and the Guy Medal in Bronze from the Royal Statistical Society. The ISI lists him as one of the world’s 200 most cited economists, he is a Thomson Reuters Citation Laureate, and has published more than 200 papers and 25 books on econometric methods, theory, modelling, and history; computing; empirical economics; and forecasting.

What’s covered in EP198

Conversation with Sir David:

  • [00:02:27] Economic forecasting: are we any better at it? 
  • [00:05:56] Forecasting errors and adjustments. 
  • [00:08:04] Widespread use of flawed models. 
  • [00:12:45] Macroeconomics and the financial crisis. 
  • [00:16:30] Indicator saturation in forecasting. 
  • [00:21:02] AI’s relevance in forecasting. 
  • [00:24:23] Theory vs. data driven modeling. 
  • [00:28:09] Volcanic eruptions and temperature recovery. 
  • [00:32:26] Ice ages and climate modeling. 
  • [00:37:09] Carbon taxes. 
  • [00:40:10] Methane reduction in animal agriculture. 
  • [00:44:43] Small nuclear reactors: should Australia consider them?
  • [00:49:08] Solar energy storage challenge. 
  • [00:54:00] Car as a battery. 
  • [00:57:01] Simplifying insurance sales process. 
  • [01:01:19] Climate econometrics and modeling.

Wrap up from Gene and Tim: 

  • [01:03:23] Central bank forecasting errors. 
  • [01:07:12] Breakthrough in battery technology. 
  • [01:11:18] Graphene and clean energy. 

Links relevant to the conversation

Climate Econometrics group at Oxford:
Conversation with John Atkins on philosophy and truth mentioned by Tim:
Info on solid state batteries and graphene:

Sir David Hendry on economic forecasting & the net zero transition – EP198

N.B. This is a lightly edited version of a transcript originally created using the AI application It has also been looked over by a human, Tim Hughes from Adept Economics, to pick out the bits that otters might miss due to their tiny ears and loud splashing. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode. Please check out the show notes for relevant information. Now on to the show.

Hello, thanks for tuning into the show. In this episode, Tim Hughes and I chat with the legendary British econometrician, Sir David Hendry. We talk with Sir David about the state of economic forecasting, and about the transition to net zero greenhouse gas emissions. Sir David Hendry is co director of Climate Econometrics and Senior Research Fellow at Nuffield College, Oxford. Previously, he was Professor of Economics at Oxford, and before that he was Professor of Econometrics at the London School of Economics. After the interview with Sir David, Tim and I go over our main takeaways from the conversation. Okay, let’s get into the episode. I hope you enjoy our conversation with Sir David Hendry.

Gene Tunny 01:26

Sir David Hendry, welcome to the programme.

David Hendry  01:31

Thank you very much, Gene. Thanks for inviting me.

Gene Tunny  01:34

Oh, of course. It’s a pleasure to have you on to talk about forecasting. So forecasting’s something that Tim and I have been thinking a lot about. And we’ve chatted with Warren Hatch who’s a super forecaster with I’ve also spoken with John Kay, about radical uncertainty and how you deal with that. And I’ve also read your book on forecasting, the one with Jennifer Castle, and Michael Clements, and I thought that was very good. And who better to, to have on to talk about forecasting than someone who has really transformed forecasting and economics, someone who’s had a major impact on forecasting? So to begin with, David, I’d like to ask, how has economic forecasting developed over your career? To what extent has it improved? To what extent are there still areas for improvement? Could you talk to us about that, please?

David Hendry  02:34

So Gene, I don’t think it has improved. I think technology has but the actual practice hasn’t. The time that I got really interested in forecasting was acting for the select committee of parliament that was looking into economic forecasting, after the debacle of Nigel Lawson’s budget and then crashing the economy in the early 1990s. And what I discovered, and acting for them as an advisor, is that 90% of the evidence he got was people actually forecasting and only 10% was looking at how you should forecast, what should you do, what goes wrong when you forecast with no analysis at all? So we started a long programme of analysing what can go wrong in forecasting and why. And once you know that, what can you do about it? Well, obviously, there’s nothing you can do about things that are unpredictable. Right, so the pandemic, unpredictable, forecasters shouldn’t kick themselves because you’ve got it completely wrong forecasting December 2019, for 2020, to discover that it’s vastly different. I mean, the biggest ever fall in GDP in Britain, you couldn’t possibly have forecasted that, that’s not a problem. And we can’t do that, it’s you can start to improve the forecast as you go through 2020. and realise that things are going badly wrong, but you can’t forecast in advance. So we isolated two key features that go wrong in forecasting. One is unpredictable events like that, that shift the data. So data is going along, and then either shifts up sharply, like inflation, or shifts down sharply, like output. But once it has changed, you can do a great deal about it. Some methods now don’t work. And some methods do work. And the methods that don’t work are the methods that stick to what went on before. So they carry on at the same level. And that’s completely wrong relative to the new level. So you have to have very adaptable methods that jump as soon as the forecast has gone badly wrong. You use methods to try to adjust for that. We call them robust methods. Right? So they’re after the shock to GDP. They’re robust. So the Office of Budget Responsibility in Britain, forecasts productivity per decade, completely wrongly, every year, they were wrong for 10 years, if they’d used our methods of adapting because productivity had been growing at about 1.7% per annum up to 2012, and suddenly it stopped, we don’t know why it stopped. But it’s come back to the levels that we had in the 19th century. Point seven. But if you keep forecasting 1.7, we just get massively wrong forecasts all the time, very bad advice for governments. And our methods would have adjusted to that within a year, saying, Okay, it’s changed, it may change back. But meantime, you better forecast along this direction. So the actual, if you like, the forecast errors that people make today are very similar in size to the kind that were being made in the 1960s.

Gene Tunny  05:56

Right. Yeah, that’s a that’s a shame. I should I forgot to introduce Tim. Tim, do you have any questions for Sir David on that?

Tim Hughes  06:04

No, it’s, it’s interesting. I mean, this isn’t my level of expertise. I’m here as the layman in this partnership with Gene. So I tend to look at things from a macro view and more from a guy on the street sort of perspective. But I’m really interested in that when you say that, well, for instance, it hasn’t changed since since the 60s. What’s the delay in the take up of these modelling systems for government?

David Hendry  06:27

Well, one of the reasons it hasn’t changed is that the frequency of large, unpredictable events hasn’t changed. And they’re very common and much more common than people realise, except to see the pandemic has been, Oh, quite unusual. Of course, we’ve had lots of pandemics, some of them happened like SARS too, not to go anywhere. Others like the COVID have gone everywhere. Inflation in Britain in the 1970s. It’s very similar to what it is today. And for very similar reasons. Now, I think a lot of forecasting that you hear about comes from central banks. And that’s the kind of forecasts we can analyse because they’re made to publish it. We don’t see the forecasts within many major institutions like JP Morgan, or Citibank, or whatever, they tend to keep them to themselves unless they do really well, in which case, they tell you oh, we were doing really well. But when you look at Central Banks, say we take the Bank of England as a paradigm, their model collapsed with the financial crisis, it just fell apart, and they said it fell apart. So we started to build a new one, we pointed out to them why it had fallen apart. They’re using a method of mathematical analysis that works fine if things don’t change, but becomes like navigating around the globe using Euclidean geometry when things do change, that just, it just doesn’t apply. And its widespread use has been a disaster in my view, for macroeconomics, and is the reason so much of it has gone wrong, because it assumes that the method that these models are built on assumes there are no sudden, unexpected large changes. Whenever they occur, the models fall apart. And we had a letter recently in the Times saying the bank should try testing their models from the 1970s. And they would find it’s a shambles. It doesn’t work at all. Because the 1970s in Britain was filled with crises, 3 day weeks, IMF coming in, interest at 25%, inflation, etc. And their model just wouldn’t cope with that. And we’re now in is not quite such a bad situation, but we’re now in a similar sort of situation where a wage price spiral is kicking in, these models don’t have wage price spirals. They didn’t allow for the fact that people had saved a great deal during the pandemic, because they couldn’t spend it wasn’t, it was forced saving if you like, and as soon as the pandemic ended they started spending, the supply side had improved to meet this high level of expenditure. So of course, you have all these factors coming and they’re not in their model. So naturally, the model was A they said inflation wouldn’t go up and B they said when it did go up it would be transitory, whereas we were saying, it will go up and it will not be transitory, it will be very persistent and very hard to dampen down.

Gene Tunny  09:24

Right. So this is a letter in the Times I’ll have to have a look for that. That sounds interesting. And it’s a bit of a concern that the Bank of England hasn’t improved its, it doesn’t sound like it’s improved its models very much at all, because in 2010, so you gave a talk to the Institute for New Economic Thinking, and you were talking about the problems with the models that central banks were using. And this was in your conclusion, you said that “there are huge costs to underspecified models and I think the financial crisis is partly due to central banks having very badly under-specified models in their repertoire.” Would you be able to explain what what you meant by that? Is that what you’re talking about here? They’re not allowing for structural breaks. But are there also are there variables they’re not including? Could you just unpack that a bit, please?

David Hendry  10:16

Yeah, there are variables they’re not including and often including variables in the wrong way. So for example, the Bank of England includes wealth. Now some wealth is expendable, like your house, some wealth is potentially spendable like money invested in stock markets and bond markets. In some it’s very spendable, which we call cash, deposits and demand at financial institutions. And it makes a huge difference, to break these up, because wealth itself can change a lot but it doesn’t change expenditure because house prices go up, or house prices go down. But it can also change a little bit and hugely changes expenditures because people run out of money, they have to start borrowing, and they haven’t got time to sell their house or the bond markets in disarray. And financial markets have fallen hugely, and you don’t want to make big losses. So you need to think very carefully about how you include variables in models, as well as which variables to include in models. I was referring to the fact that the housing models in the US when the financial crisis started, were very weak, they didn’t cover all the aspects that that matter, because in some States, if your house price falls greatly, and leads to a large indebtedness, if it was sold, you can just hand back your keys and walk away. You can’t do that in other States. And the subprime crisis generated articles, even from central banks, saying that it’s really important to get poor people onto the housing market, because that’s where how you build that wealth, of course that led to all sorts of speculation, and then house prices crashed. And that’s poor people who end up suffering most and we got a very bad financial crisis. But you guys didn’t have it. Right Australia avoided it, because it hadn’t got engaged in quite such nebulous activities as the AAA assets that were worth nothing.

Gene Tunny  12:16

Yeah, yeah, we avoided it. I mean, partly because of mining. And then the Treasury and the government here, they would say that they had a timely fiscal policy response. I mean, there’s debate about the extent to which that was relevant. But yeah, we were we were lucky. And maybe we hadn’t had as much crazy financial activity as in the States and Britain. We’ve got our regulators too. So yeah, a variety of reasons. But yeah, that’s, it’s fascinating.

David Hendry  12:46

I was gonna say, the way macro economics is taught in almost all major universities around the world still relies on this approach of believing agents optimise across time into the future. And you can’t do that in a world in which you suddenly get big shifts, right? You’re what looked optimal one day becomes a disaster the next, for example, Royal Bank of Scotland trying to buy this Dutch Bank looked optimal to them in the state of the world before the financial crisis and did become an absolute massive disaster after it. And that isn’t something that’s taught in macroeconomics courses that I know off.

Gene Tunny  13:29

Yeah. Yeah, unfortunately, a lot of the macros become very mathematical. And you’ve got all of these forward looking models, these Ramsey type models, and yeah, but I wonder about the just how applicable, they are. So good point. Can I ask you about your methodology David? So you’re famous for having promoted this general to specific methodology, if I’m getting that right. Could you just explain roughly what that is and how its implemented and what the modern implementation of it is? I mean, you’ve got this automatic forecasting system. Could you tell us a bit about that, please.

David Hendry  14:11

The whole idea started in the 1970s, when it was quite clear that the then big models in the US and Britain didn’t really incorporate enough information. And if any, if you leave a variable out of a model that matters, say you didn’t include housing in a macro model, and suddenly you get a big change in house prices, the model will go wrong, because it should be, housing should be in the model, and it’s not there, and it shifts and that then shifts the reality relative to the model. So it became clear you needed to think very hard about all the things that might matter. And that then required you to put statistical method that could discriminate between what does matter, and what you thought might matter but does not matter. And so we had this paper in the mid 70s, on the consumption function in Britain, showing that you could explain everybody else’s consumption function failures by a more general consumption function that pointed out why they went wrong. And that led us to develop this general to specific as a very general approach. Now, it evolved greatly in terms of, as we realise, more and more the importance of shifts and outliers in forecasting, we began to develop these methods, which at first, I have to say were greeted with not scepticism but total disbelief that you could do it. So that to take the basic idea. Say you’ve got a relatively short time series that’s got 10 observations. And you think that within those 10, there might be a discrepant observation, somebody wrote down 10, when he meant one, right? You just fit the model to it, or it’ll go very badly wrong. So what we do is we create an indicator variable for every observation. So it’s one for that observation and zero elsewhere. So you get 10 of them. And you put them in in big blocks, say five, and then the other five, and they won’t do anything, if there is no shift, but they’ll pick up the shift when it happens. And we call this indicator saturation, because you put in as many of these indicators as observations. Now why would anyone think of doing that? Well, it was serendipitous. I was asked to participate in an experiment in econometrics, to model food demand in the United States, from 1929, which isn’t a great date to start, any time see, through to 1986. And I looked at what everybody had done, and they had all thrown away the data before 1946, they couldn’t model it. So I built a model of it and looked what had gone wrong in the interwar period, and discovered there were two gigantic outliers in I think, 1932 and 33 but don’t guarantee that it could have been, but round about that period. And Mary Morgan kindly went to the archives and discovered, guess what, the US had a food programme? Well, will a food programme affect the demand for food, you bet it will. So I put in indicators for those observations and immediately got a very good model for the whole period, for the period up to 1946. So then I thought, right, let’s fit the cost period, including the early one. But we’ll put in indicators for all the observations, which is the kind of forecast test and found the Korean War I think had one big outlier, but otherwise, it was fine. And then about a year later, thought that’s funny, I had put in indicators for every observation. All the ones for the pre war period and all the ones for the post war period. And it had worked, I got the best model of anybody. So I started talking to Soren Johansen, a famous econometrician statistician, he said, “You’re nuts. You can’t do that!” And about a month later, he emailed to say, “Yeah, I think you can do that and I think I know how to analyse it,” which because if you don’t analyse it in economics, they just ignore it. And so we published several papers showing detailed analytics of why it would work for impulses, we then extended that to steps and then trends. So we can pick up trend breaks, step breaks etc. So for our 10 observations, we might end up with 40 variables. Most statisticians look at you, you’re nuts. But actually, you can show it will work. Because if there’s no break, no trend, they’ll all disappear. If there’s no step shift, they’ll all disappear. There’s only one outlier, you’ll be left with one outlier. And that’s it. So that’s how we do general to specific now. And that’s why you need automatic modelling. Because a human can’t do that. The number of possible things is far, far too big. The computer programme can of course, do it in seconds, at worst, maybe minutes if it’s a huge data set, because it’s got many, many things to look across.

Tim Hughes  19:27

Actually, this probably feeds into one of my questions for you, David, which was, you mentioned about the modelling and the mathematics, and the current uptick in artificial intelligence, in AI, is that something that has made a big difference with the work that you do?

David Hendry  19:45

Now our programme is a sort of AI programme date back a long way. Because it’s experimenting with everything. It’s a programme that’s designed for data that keep changing. Most AI programmes are not. Most AI, it takes all the cases and trains the computer to identify things in those cases. But if the cases suddenly change, that’s not going to work. And so AI has itself, the way people have used, it has not made a big impact on forecasting yet. They have to adapt AI to learn from the data, and be ready for it to be adaptable into the future in a way that if you were trying to teach a programme to identify measles, you probably would just take all the cases of measles and the programme would be able eventually to look at the spots and say, Yeah, that’s measles. But if Measles can suddenly evolve, as say the pandemic did, what you’re trying to pick up by AI would no longer be relevant. It would look different, and AI would misclassify. So AI has got to be hugely changed to be relevant for forecasting, which is about a changing world. We’ve got climate change, we’ve got pandemics, we’ve got wars, we’ve got crises, we’ve got inflation, we’ve got changing population levels, etc, etc. Unless it can adapt to that it won’t be useful in forecasting.

Tim Hughes  21:15

In your view, do you think that that is quite likely that AI will get to the point where it will be more predictive and not just reactive?

David Hendry  21:22

Well, we’ve shown you can do it, ours is very simple AI, it’s nothing like the kind of complicated neural networks that are being used in some areas. But it does show that you can do it for forecasting, and it does matter. And in the M4 Forecasting competition, which was run from Melbourne, the AI ones or machine learning, as they were then called, did not do terribly well. We came seventh in our very simple one. And and it turned out that we spent about a 50th of the time that most of the other teams did.

Gene Tunny  21:57

Was this of a motorway was it was at the M4 motorway?

David Hendry  22:01

no no. M for Makridakis fourth forecasting competition. The M four we’re now at five. It’s currently ongoing. Makridakis is a Greek forecaster, who decided the only way to improve forecasting is to find what worked. So he asked people, here’s 1000 time series, we’re not going to tell you what they are, model them, and send us your forecasts for the next 10, 20, 30 observations. we’ll analyse those and see who did best. So at the M4 there was 100,000 time series to model. And you then have to forecast I think, up to 20 years ahead for some of them. And you’ve to send in all your forecasts. And they then worked out who did best and got closest to the actual numbers in the future. Actually Uber did, Uber won the competition, Uber, yeah, the car hire people got algorithms of the kind that could be applied to forecasting. But what they did, we think was accidentally wrong, that they looked across, say, nobody knew what the time series were. But it does turn out that some of them were, say, GNP from 1950 to 1980, and somewhere from 1990 to 2010. Right. Now, they looked across, do some series help us in forecasting other series. And we think they actually included the future of the series they were to forecast in the, seeing if these series helped it, which is why they forecast much better, because we’ve mimicked their method, when all the series are completely independent, and it doesn’t help. So they had to be doing something like that accidentally, I don’t think they realise that, some of the series where the future of others of the series…

Gene Tunny  24:00

Okay, yeah. Can I ask you a question that’s related to that? It just reminded me, because you were saying that they don’t tell you what the data series are. Now. There’s this debate about, well, to what extent do you use theory and you’re modelling, you know, theory driven versus data driven, is it the case that you can get a reasonably good forecast without any theory whatsoever or without any understanding of what the underlying what the data are actually measuring? Or do you need theory? How do you think about the role of theory in your modelling? David?

David Hendry  24:33

Well, when we were forecasting week ahead Covid deaths and cases in the UK, the model only used the past data. And for the first six weeks we were by far the most accurate forecasters relative to epidemiologists with their big models and taking account of whether, you met people who had it and all the rest of it, and that’s because their models needed about 10, 12 weeks of data before they even began to be useful, whereas we could forecast immediately without any theory. I mean, I understand the big models and why they work, but we thought you can’t use that. And it’s because the way COVID hit, it did big jumps, measured on very few cases. And suddenly, like Bergamo, you had 50 people dying in a day, right? And so you get these big jumps and our methods adapt rapidly. So in that area, you could do extremely good modelling without theory. But when it comes to economics, how many variables are there? 5 trillion, possibly in the economy, if you think of everything that’s going on, so you have to have some theories and say, well, most of those don’t matter. We just can’t deal with that. So we use a lot of theory in our models, but we embed it in the general. So say you have a theory, let’s take a very simple theory that only income causes consumption, consumers spend their income and that’s it. So consumption is related to income, period. Okay, we keep that and embed that within a model in which things like well, maybe interest rates matter, maybe wealth, maybe liquidity, maybe, etc, etc, etc, matter. But when you’re searching, you don’t search over the relationship between consumption and income, you always keep it there. And if it doesn’t matter, then it will turn out to have a very small coefficient, and you can decide to drop it in the end. But if it does matter, and it’s the only thing that matters actually our method will give you the same answer as your theory model. So we embed theory in such a way that if it’s correct, that’s what you will get. And if it’s wrong, you’ll get a better model. So it’s both theory driven and data driven.

Gene Tunny  26:53

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  26:58

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you frank and fearless economic analysis and advice, we can help you with funding submissions, cost benefit analysis studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world. You can get in touch via our website, We’d love to hear from you.

Gene Tunny  27:27

Now back to the show.

And so you start off with a very general specification, lots of data in your database, lots of variables, if I’m getting this right, and then you allow for the potential potentially all of these structural breaks things where things go a bit crazy, you jump up to a new level, like during the pandemic or, or whenever, and we we dropped down from the trend growth path we were on maybe we were cycling around it and suddenly we’re somewhere we’re in this hole and so you’ve got models that can adjust for that sort of thing is that if a fair way of thinking about it,

David Hendry  28:05

Yes, it’s post, yeah. Yes. Once it’s happened, then the model will pick it up. So quite a good example that might intrigue you is finding out where all the volcanic eruptions occurred over the last 1000 years. And when the when one of my colleagues gave a paper in our methods at our General Environmental Conference, all the volcanologists were intrigued and asked us can you use these adaptive methods to show where volcanoes were and measure how they work? Well, the answer is yes, we adapt our methods instead of them being one zero zero. They’re kind of like a V. Because when a volcano erupts, the temperature drops immediately. But it then recovers roughly half a half a half a half of what’s left. So the V shape picks that up. So we found all the volcanoes from 1200 AD in the data set of tree ring growth dendrochronology. And the key thing about that Gene is as soon as you’ve got the first observation of the volcano erupting and the drop in temperature, you can very accurately forecast all the remaining observations to the recovery, by having this V shaped go half a half a half. And we showed we could forecast, okay, forecasting after a volcano in 1650 isn’t all that interesting today, but it tells you that the next time we get a world explosive forecast like Tambora or Krakatoa, we will be able to tell the world after it’s stopped erupting, how quickly the temperature will recover to the previous level. It also lets us adjust the so called baseline temperatures that IPCC use. That in fact have been several quite big volcanoes that have dropped the temperature a little bit for a few years, and that actually means that they’re cheating by using a slightly improper average over the periods they’ve picked, as they shouldn’t include the volcanic eruption, right? Because that’s when you should use the natural level that had been over that period overall, if that makes sense.

Gene Tunny  30:22

Yeah, that’s fascinating. And so your, so is that an application of your method? Or are you, the point you’re making about the volcanoes there? Or are you saying that you can apply some theory to get a better forecast? I’m just trying to understand

David Hendry  30:36

It’s our methods purely. And it’s just the knowledge that when volcanoes erupt, the temperature falls, but it goes back again. So the question is, what form do you use for that? We just invented one that says V shape, and then we put in a V for so, it’s just over, I think we had about 900 observations. So we’ve put in 900 of these Vs in big blocks, but it only picks up a significant g if there was a Volcanic Volcanic eruption, right, because otherwise, it doesn’t help fit the model. So it then just picks up all the volcanic eruptions, and the volcanologists started using this method, we’ve done one to get a new archive of volcanic eruptions since zero, like 2000 years ago,

Tim Hughes  31:24

Actually this probably leads us on, do you have anymore questions Gene?

Gene Tunny 31:30

No not at the moment, go ahead Tim.

Tim Hughes 31:33

David, I was gonna ask you about climate econometrics. So you’ve written a book on that with Dr. Jennifer Castle. So I was interested to see exactly what climate econometrics is, and how it might be able to help us tackle climate change.

David Hendry  31:44

Yes, climate change is caused by our economic behaviour. All our methods were developed for modelling economics. So it would be quite unsurprising that they would work from modelling climate change, which is due to economic behaviour, CO2 emissions, and nitrous oxide emissions, the way we travel, the way we live, the way we eat, the way we warm our houses, etc. All these things are economic decisions. And so if the methods work for the economic behaviour, they’ll work for explaining climate, they’ll actually also work for claiming, explaining things like ice ages, even though there’s no humans around then, because they, the kind of dynamics of ice ages how the amount of co2 in the atmosphere, the amount of past sunlight falling on the Earth, that’s created the temperature, the amount of ice that’s around, etc. All of these carry forward into the future and there’s really good data on ice ages, I mean, 800,000 years of pretty accurate data and how it evolved. And we can fit our models to that, again, very general. Now, why would you want to put in indicators? Well, of course, there’s often a lot of dust in the atmosphere. And dust falling on ice turns it black, which turns up the amount of heat that absorbs. So if you have a period of massive volcanism, which does occur, I mean, often you can have 50 years of vulcanism puts up so much dust, it actually changes the pattern, and you can pick that up, and the sudden jumps in temperature that were unexpected, for example. So it can be applied to all these issues. We’ve been applying it to modelling ‘How well is the UK doing in getting to net zero?’ Now we were at a particular point that we had very good data on all the ingredients that lead to CO2 emissions, the amount of coal, which was huge in the 19th century and up to about 1970 was pretty large in Britain, but then began to drop dramatically, because it became inefficient relative to other sources, but also because it was banned in household fires. When you were not allowed to have fires based in smoky coal because smoke, so you get the demand for coal falling, and that led to the discovery of natural gas in the North Sea. Prior to that the gas system was coal gas, which required you to burn coal to get the gas but it’s very inefficient so that got rid of coal and natural gas is much more efficient. And oil was throughout beginning to replace the use of coal in many industries particular. And then in 2008, the government banned it from being used to produce electricity. And that’s the death knell for coal in Britain’s there’s almost none used nowadays. Now, 2008 is something The Climate Change Act of 2008 amazes many people, both parties unanimously voted for it as did the Lib Dems is completely we need this, let’s do it. And you get a huge, very rapid drop in the amount of CO2 emissions in the UK. Now Britain’s been moving towards a service economy from a manufacturing one. But it hasn’t been doing that to get rid of CO2. It’s been doing that because World Trade Organisation rules meant you couldn’t put extra taxes on people who are cheating in the way they were pricing their products. And so they killed off a lot of British industry. So I don’t accept that the offshoring has anything to do with climate change and claim that our domestic reductions. So Britain’s come down from 12 tonnes per person per year to four and a half tonnes per person per year over that period, which is a very dramatic reduction. America is still at 15. So it’s still above the highest it ever was in Britain. And one of the explanations we came across recently is that in Britain, cars went about 20 miles to the gallon in 1920. Now on average, they’re going 55. In America, they went about 20 to the gallon. And now they’re going about 20 to the gallon. And there’s many, many more cars, and they’re driving much further. So they’re consuming vastly more oil, and therefore gasoline. And therefore pumping out much more CO2, nitrous oxide, particulate matters, etc. They’ve had no efficiency gain, whatever, because they’ve gone for these bigger SUVs, much heavier, much bigger engines and petrol, gasoline has never been taxed in the US, whereas in Britain, the tax is about two thirds of the price of a pump.

Tim Hughes  36:54

Yeah, it’s expensive. Yeah, it’s a lot.

David Hendry  36:57

Yeah, it hasn’t discouraged people from driving. Right, people are still driving, there more and more kilometres on aggregate in Britain driven every year despite these high taxes and gasoline is one of my reasons for believing that carbon taxes will not by themselves solve the climate change problem. We need technology we need to adapt until we’ve written several papers, proposing a system of what we call five sensitive intervention points. That can be used to exploit how people behave without trying to change their behaviour, but to make them do things that will then be climate optimal. So for example, cars in Britain last nine to ten years on average, and then become obsolescent. So instead of buying another internal combustion engine car, price electric cars so that they automatically move over and buy an electric car. And if we did that, over the next 30 years, we’d end up with every car being electric, and nobody having suffered and have got the new car that they wanted at each point in time, but switching over gradually. But that requires you to be providing more electricity all the time to meet this, which requires upgrading the grid and installing more wind farms or solar cells, and maybe more small nuclear reactors and perhaps investing more in fusion in the hopes that the current breakthroughs can be made useful for society before 2050, and so on. And the paper tries to spell out how all these steps interact all the way down, clean right down to farming, how we get rid of the massive amounts of nitrous oxide, methane and even CO2 to come out to farming. That’s a huge concern in New Zealand, your neighbouring country, poor farmers, they’re objecting to fart tax. I don’t blame them. I mean, so how can they deal with it? Right? It’s, it’s not like you can deal with the tax when cars were getting more efficient when they’re driving less or getting an electric car. They need to think of the technology that will reduce methane emissions from animals. I don’t know if you know that there’s an island off Orkney called North Rolandsay, where the sheep are not allowed off the Shore, there’s a wall around the island and all the sheep are kept on the shore, and they eat seaweed. But methane…

Tim Hughes  39:25

Yeah, I heard about this recently. And because I was going to say I agree with what you say about technology, making these changes. So you know, rather than forcing people’s habits to change or you know, doing something drastic with our food chain, etc, the technology will contribute towards those changes. And yes, I saw that the seaweed or additives made from the seaweed could be one of the solutions for for methane. So just by adding it to the food. Obviously, it’s early days to see if that may or may not work on scale. But it’s encouraging It is encouraging to see those breakthroughs.

David Hendry  40:02

I think the breakthrough that’s needed is to synthesise the chemical. that does it. Because I don’t think you can grow enough seaweed to feed all the world’s cattle, sheep, goats, etc. I think that’s not on. But knowing that asparagopsis taxiformis, which is the one that seems to be best for stopping the thermogenic reactions within animals, it could be synthesised in the way that aspirin was taken from willow trees, and then Bayer worked out how to synthesise it. And I think these these things are possible. So yeah, I mean, our paper suggests that all of it is possible. Some of it needs subsidies, I don’t think tax is the right way to do it. Because we saw the uprising in France from the yellow vests. And that’s happened in Sweden, people object to their lifestyle being disturbed. This doesn’t disturb their lifestyle. It just says, oh, you know, you’d be better off if you do this. And then you can keep manufacturing going making cars but electric cars and wind turbines and solar cells and heat pumps and so on. All of it’s out there. And the thing that I do emphasise when I meet sceptics is by the end of the 19th century, we had cars that were electric with rechargeable batteries that could go up to 50 miles between recharges. We had solar cells, on roofs, we had wind turbines that were being used on farms, we knew that climate change was caused by excess CO2. And everything was in place for an all electric society, we knew how to generate it from hydro power, from wind power from solar power. But then the Americans discovered oil and the internal combustion engine. And that

Tim Hughes  41:54

So that technology was there at the end of the 19th century. You’re saying?

David Hendry  41:57

At the end of the 19th century, all of it was there. And we trace who invented it, how they invented it, how it developed? Yep, it was all there. Not LED lighting, that’s an important, more recent development.

Gene Tunny  42:12

Yes. Can I ask about that? That paper? I’ll have to look it up. It sounds fascinating. So have you you’re you’ve done modelling, have you of this path to net zero for Britain? Is that what you’re saying?

David Hendry 42:20

That’s what we’re saying yes

Gene Tunny 42:24

Okay. And yeah, it’s feasible. If there’s this technology, some technology shifts, technological improvements, but also that there may need to be some subsidies for electric vehicles, I think, was that what you were…

David Hendry  42:37

For the electric vehicles, but also for the grid. You need a massively improved grid, both because there’s vastly more electricity, but it’s got to be more resilient to climate change, because climate change is going to happen. Irrespective, even if we managed to reduce everywhere, it’s still going to carry on for a long time, because the oceans and the air have got to calibrate the temperature. And that takes a long, long time to happen. So sea level rise will continue, the Earth will continue to warm but at a slower and slower rate, if we stop pumping out quite as much CO2. And obviously, if we can find ways of extracting it, to research that, that would help. One of the things that does extract it, believe it or not, is basalt. Stuff that volcanos erupt, right? Now, if you look at photographs of volcanoes, the land around them is very fertile. So you can actually replace artificial fertilisers by ground up basalt. And that will act as a fertiliser, because it’s got all the minerals in it, but it also absorbs CO2. So it actually helps reduce CO2 whereas artificial fertilisers in making it they produce CO2, they produce nitrous oxide, etc, etc. So one of our proposals is that we start switching quite rapidly to using ground up basalt which costs next to nothing. There’s 300,000 cubic kilometres of basalt in India. That’ll take a long time to use that up.

Gene Tunny  44:12

Right, I’ll definitely have to check this out. I mean, this is a big issue for Australia. How do we get to net zero? And I mean, Britain’s probably got some advantages over us, you, you don’t have as big an area. I mean, we’re gonna have to build all of this transmission to connect up the renewable energy. Like we don’t have nuclear energy here and the Opposition party is trying to push it, but then I think there’s going to be a lot of community resistance to that here in Australia.

David Hendry  44:37

Yeah, I can believe that. But do people understand small nuclear reactors? That’s the only ones we’re arguing for, not the big ones, the small ones. In Britain, lots of big ones. And they’ve produced a lot of transuranic waste, that’s going to be a huge problem for humanity. Now, there are two advantages to small nuclear reactors. One they can use that transuranic waste as their fuel and greatly reduce the amount of radioactivity that needs to be dealt with from it. And secondly, they’ve been used in nuclear submarines for 50 years, and there’s never been an accident. So they’re very safe and they don’t have any fissionable material that terrorists might want for bombs. I mean, the stuff they’re using is useless. Other than burning up the waste, it’s a problem anyway. So if the public knew that these are harmless, that they’re getting rid of a problem, you don’t have nuclear reactors, so it’s less of an argument there. But in Britain, people would jump at the chance to cut the amount of nuclear waste that needs to be disposed of, burying it or put it in deep caves, etc. And these guys can do it

Gene Tunny  45:52

Right Yeah. These are the small modular reactors, are they?

David Hendry 45:56


Gene Tunny 45:58

I think that’s what Peter Dutton, who’s the Opposition leader here, what he’s talking about,

David Hendry  46:02

Oh good for him, I think they are actually an important component, but only one possible component of an electricity provision, that would give more energy security. And, and be something that can work in almost all circumstances.

Tim Hughes  46:18

This is an area that we’ve talked about a few times, and one of the things that comes up is that the most likely scenario would be to have a suite of different options as to where they get the power from. So for instance, we’re very lucky here in Australia, we have abundant supply of sunshine. And so that’s clearly one of the options open to us, which we currently use, and it will grow. But there’s also hydro, there’s wind, there’s other options and having the various different things available. So that for instance, I mean, I know in the UK, for instance, like to rely on solar isn’t something that you’d want to rely on fully. So it would be the same everywhere I imagine and that that those suite of options or those suites of available power supplies would be different around the world. But it does seem to be that a lot of this is driven by the market, which we’ve noticed here and it has come up in conversation, which is that’s that seems to have been a big change, where that it’s been widely accepted that climate change is real, and that most people do want to have clean oceans, clean atmosphere, clean fuel. And so that driving force from the market, seems to be also then instigating the technology from the suppliers of those options, you know, people like Elon Musk, or, you know, these, these people who can make things happen very quickly, much more quickly than governments can. So it seems to be accelerating and going in the right direction. And so the net zero target is 2050. I think, is that right for the UK?

David Hendry  47:51

That’s right, it’s too far in the future. But we’ve picked it because the costs of adjusting to it are near zero, and probably even positive benefits from doing it slowly, in terms of machinery running out, cars getting obsolescent, trucks needing replaced. Developments, I mean, in solar cells, for example, Perovskite cells are now able to produce 30% of the energy from the sun as against the standard solar cells 22. That’s an enormous improvement. And that technology will take a little while to get commercialised and applied. And then people will have much, much more efficient solar cells to put on their roofs.

Tim Hughes  48:32

And the infrastructure needed for electric vehicles is obviously going to be enormous, especially in the built up areas. So it’s going to take some time for it all to happen.

David Hendry  48:44

Absolutely, but if the market prices correctly, it can be profitable for them to instal all the connections, it doesn’t necessarily cost much in the same ways they built filling stations. I mean, they didn’t build them for fun. They built them to make a profit to build these guys to make a profit as well.

Gene Tunny  49:03

Yeah, there’s some big issues here. Tim, one thing I would say on the solar I mean, even though we’ve got abundant sunshine, the challenge is, it we’ve got to store that solar energy for when it’s actually because yeah, that’s one of the problems because you don’t have it at night and yet there’s a big peak in demand when everyone gets home from work. And yeah, that’s why we’re having to build hydro where the State government’s here is investing heavily in hydro and trying to progress some couple of hydroelectric plants quite rapidly, which is, which is what you need to do so

David Hendry  49:33

Yeah, Britain’s rethinking hydro again, taking the Great Glen and converting it to a massive lake to reservoir to bag more hydro and Norway has always produced most of its energy from hydro. The first ever house to be lit by electricity was driven by hydroelectric. Armstrong, the gun manufacturer, built a hydroelectric system for just providing his house with electric lighting. That’s the first in Britain. So that’s part of the 19th century that we could have got an all electric world. And storage is a big problem Gene really is. And we’ve recommended using nighttime much later nighttime surplus energy to produce hydrogen. There are several methods, let’s not go into them parallel assistant electrolysis and creating liquid hydrogen, right. And liquid hydrogen is a fantastic storage of power. Okay, and you can use it either for heat, or to provide the electricity that you don’t have otherwise, indirectly or as a high heat source for industry if we’re going to get rid of coal and oil, they’ll need a high heat source. Well, you just see NASA’s rockets taking off and you realise you can get a lot of heat using liquid hydrogen mixed with oxygen

Gene Tunny  50:56

And so do you think that could be commercially viable, we’re trying to build a hydrogen industry here, not me, but the state government and the industry. And I know the Japanese are very interested, Mitsubishi and companies like that they’re looking at, they’ve got all these exploratory projects up and down the coast here. I mean do you think it could be commercial?

David Hendry  51:16

Yes, definitely. I don’t know what the cost to steel makers is of their energy provision. But if the hydrogen is made from the surplus energy at night, from things that wind turbines, which often have to be switched off, because you’re producing electricity that can’t be consumed, but it will always be able to be consumed from making surplus hydrogen, that’s our surplus energy for making hydrogen. And the cooling will also require a lot of energy. So I think it could actually, they could actually end up paying people to make hydrogen. Right to stop the wind turbines being turned off when a large percentage of your electricity is coming from wind turbines. And it’s coming at night, when you know three in the morning, the demand is zero. So I think there’s strong possibilities of using that.

Tim Hughes  52:10

That’s good battery technology is really another area as well, of course that is is going ahead. I was just trying to remember the name of the technology, I think it’s single cell batteries. If that sounds right. But I know Toyota, for instance, have invested a lot of money in this next generation of batteries. And it’s been talked about in the realms of that there will be sufficient enough in a car that you’ll be able to power your house from your car. So it’s that kind of capability that is being expected. Remember John Atkins, mentioned this in one of the

Gene Tunny  52:42

Yes, we might have to go back to that Tim and have a look and put some links in the show notes.

Tim Hughes  52:49

It’s a thing, it’s a thing. I didn’t make it up, I promise.

David Hendry  52:51

Okay, so you have to remember that using that kind of technology, a glider went around the world. Right? Yeah. It was a glider, but they did do it, and Britain has several electric aircraft for short distance travel, which are all electric. And trains. I think both Germany and Britain have been developing trains that ran off fuel cells of the kind that are driven by hydrogen. And they do produce enough electricity. But at the moment, the machines that do it are enormous and very heavy. So they have to find some way of producing fuel cells that work from much less expensive and heavy technology. But why not have solar cells in the roof of your car? Well, at the moment people would rip them off, of course, thieves would just take them, but they become ubiquitous. That may be one of the routes that we could do. Another as you mentioned, Musk, at one point, Tesla put up a video on the car being the battery. And they used graphene tubes filled with electricity all the way around the car, and then it provided enough electricity to drive the electric engine for 1000 miles. They dropped the video very quickly. And we don’t know if they dropped it because it was giving away secrets of they didn’t want or it didn’t work to try to match it didn’t work. I think it should work. I can’t believe that I mean graphene is a super capacitor can store enormous amounts of electricity. And there must be a way of using it and making graphene has now become very straightforward. You can take waste plastic, it was a laser and you turn it because it’s a carbohydrate you turn it into carbon and the carbon can be turned into graphene. Just pick up the tiny bits and join them the way that they originally discovered graphene in Manchester.

Gene Tunny  54:57

Incredible. That’s just incredible what’s going on, David we’ll have to put, I’ll put a link in the show notes to your research group on climate at Oxford, isn’t it. So I’ll put a link in because there’s links to all sorts of great stuff you’ve done and all great articles. There’s one more thing I wanted to cover before we wrapped up, because I know we’re getting close to time. There was one thing that you mentioned in that talk that you gave in 2010. This was to the Institute for New Economic Thinking, if I remember correctly, I think was George Soros in the audience? It was incredible. It kept showing George Soros in the audience because I think it’s his, his Institute, or he funds it. But there’s a mention of the insurance company, you talked about this large US insurance company that you’ve done some modelling for or they were using your approach and 5000 variables, and but only a few 100 data points? And could you give us a flavour of what type of modelling that was? I mean, without revealing anything commercial, I was just…

David Hendry  55:55

Yeah, okay. So the 5000 variables are things like a 28 year old, single woman living in Texas with one car, and no children and owns their house. And that’s a variable. Right. So they then price their insurance for her house, knowing all these factors. They were finding that the sales were getting too difficult. And they wanted some simplification of what was actually driving their profit. So Jurgen Doornik who actually did this work, already had auto metrics, working with quite short time series on these sorts of various people. But you could then model all the things that might be taken into account and discover, actually, it didn’t matter that they were single, it probably didn’t matter, they’re female, it probably didn’t matter they’d no pets, right? What mattered was that they owned the house or didn’t own the house that did have a mortgage or didn’t have a mortgage and whether it was fixed term or so very few variables turned out to matter. And it allowed the company to dramatically simplify the number of people that they employed for sales, right, they came way down until when the financial crisis hit, their cost base was vastly lower. And they survived the financial crisis in the way that many insurance companies didn’t, because they, you know, they lost so much money in housing, for example. So that, although it says 5000 variables in most of them could never have mattered when being male would not apply taking female, for example. So males would not have been entered in the models for females and age that older people can’t be young females. So you can see immediately, although they talked about, we talked about 5000 variables, and there were most of them wouldn’t have been relevant in any given situation.

Gene Tunny  57:56

Right. And so this was the autometrics or autometrics is that part of

David Hendry  58:00

OxMetrics. That’s part of the OxMetric system. And it’s written in Ox, Ox is a computer language that Jurgen developed in the 1990s, early 2000s, it was the first attempt to get fully automatic modelling. And I have to say, our first attempts were really ridiculed by the profession, the idea that you can automatically model it didn’t require human intervention. Well human intervention is of course, thinking about what goes into the model. After that, itt’s pointless spending hours trying to see which is the matter when the programme can do that much more efficiently, much faster and much more generally. So it gives, we believe it gave much more time for thinking and much less time wasted in front of the computer desperately trying to find the model.

Gene Tunny  58:51

Yeah, it sounds to me like our central banks and treasuries and finance ministries should be, yeah they should, if they haven’t got a copy of your programmes, they should get a copy of them and start applying them because we certainly need to do better than the, than we have been in terms of forecasting. So…

David Hendry  59:09

RBS definitely has a copy, the sorry the RBA.

Gene Tunny  59:14

Okay, yeah. Yeah. It’s hard to know what they rely on some, I guess they they’ve got a model. I don’t know to what extent that it informs their policy actions. They got this Martin model, which is Yeah, yeah, it’s I don’t know. I don’t it doesn’t I don’t know whether it’s was developed using your

David Hendry 59:25

No, it wasn’t.

Gene Tunny 59:30

No I might have to come back to that because it’s a it’s a rather complicated model not not today, but just just good to Yeah, it’s good to good to find that out at least they’ve got your software if they and hopefully they’re making use of it to some degree. Okay, Tim anything more for Sir David?

Tim Hughes  59:50

No, I just think so it was really interesting. Thanks again for your time, and I think it just reinforces the, the way you talk about the modelling and the conversation we had about AI. Again, it’s something that’s come up in other areas where it’s a really powerful tool, but there’s a human discernment at some point to sort of like, bring it all together. And without that, it’s only so useful. And so I think it’s always encouraging to see that we need that human intervention to make sense of things. And sometimes humans get in the way of good modelling. I imagine, you know, that, but if we can give that amount of work over to the models and the AI to do the work for us as a tool, then, yeah, it’s very powerful.

Gene Tunny  1:00:35

Very good. Okay. Well, Sir David Henry, thanks so much for your time. I really enjoyed it really appreciate it really learned a lot. So thanks. Thanks so much.

Tim Hughes 1:00:40

Thanks for your time.

David Hendry  1:00:43

Thanks a lot. Thanks for having me interviewed.

Tim Hughes 1:0046

You’re welcome.

David Hendry 1:0050

Take care.

Gene Tunny  1:00:54

So Tim, that was an amazing conversation with Sir David Hendry, what did you think?

Tim Hughes  1:00:59

Yeah, that was fascinating. I really enjoyed it. I was a very happy audience member for most of that but yeah, I really lapped it up.

Gene Tunny  1:01:06

Ah, you’re more than just an audience member Tim! I mean, I think you are. You’re participating in that conversation. And you’re asking some good questions. So yeah, it was good to have you onboard. And what I found fascinating is I mean, I had the I had the line of questions about forecasting. And then we went broader than than just the forecast. And we started talking about climate econometrics. And you know, what he’s doing the modelling of getting to net zero for the UK, which I thought was absolutely fascinating.

Tim Hughes  1:01:40

Yeah. And he mentioned that the modelling hadn’t actually progressed in many ways, like, not necessarily with the climate econometrics, but with the other modelling that we were talking about in the first half of the conversation, which was surprising to hear.

Gene Tunny  1:01:53

Yeah, the forecasting. I mean, not what he’s doing, because he’s really a leader in forecasting

Tim Hughes 1:01:59

Yeah so his model he could back

Gene Tunny 1:02:03

Yeah, I mean, and of course, he’s going to back his own modelling, but I’d actually believe it because he’s one of the gurus of econometrics. So when I was studying econometrics, or first started studying back in the 90s, he was one of the big names. And yeah, the approach that he had this general to specific approach where you’re, you’ve got this very general specification, you’re trying to hone in on this more specific specification, you’re searching for the right functional form the right way to express the equation, the right variables, the right number of lags, and some clever things to get things back on track. If they’re shocked things like error, they call them error correction mechanisms. You remember, he was talking about the volcano modelling the global temperature after a volcanic eruption, I thought that was really interesting how he had this clever little functional form this V shape to get to get it back on track to model that I thought that was really clever. And I mean, he’s renowned for doing that sort of thing in his economic models. And, yeah, I was surprised that there hasn’t been a more widespread take up of that approach. And I think my takeaway from this is that, yeah, there needs to be more education or more outreach from from David’s group, I guess, at Oxford to really, you know, promote their their methodology, I guess they’re they’re doing it, they’re trying to do the best they can. And it looks like, you know, central banks or reserve banks got a copy of their software, the OxMetric software, which has PcGive and the other, the other parts of that software, but from what I’ve seen, it’s not as widely used as it probably should be

Tim Hughes  1:03:50

With any modelling, couldn’t that just be run in tandem as a hypothetical to see how it might have performed against the current models? Is that how it would work?

Gene Tunny  1:04:00

Yeah, yeah. And hopefully, they’re doing that. But

Tim Hughes  1:04:03

yeah, because like, you would think at some point, you know, if it’s outperforming, everybody’s interested in, you know, the best outcome s o it would be interesting to see, didn’t, didn’t actually ask that direct question. But that would be interesting to know if that might be feasible or possible, or if it’s been done?

Gene Tunny  1:04:20

Well, I think hopefully, the central banks and Treasuries are using this approach, or they, or I hope they they’re experimenting with it, they should use it more from what I can tell. What I found interesting about our conversations, he was talking about how I forget whether it was the Treasury in the UK or the Bank of England, they were overestimating productivity growth in the UK for a consistent period for like a 10 year period or something. And so that sort of mistake could have real consequences because if you, if you’re overestimating productivity growth, then you’re overestimating what you’re GDP growth is, what your economic growth is, your, in your forecasts, and therefore, what that would mean is that you may not have your policy settings, your monetary policy settings, right, because you think GDP growth is going to be faster than it actually will be. And so maybe you’re not giving, you don’t have the bank rate low enough to to help, you know, promote economic growth. So that sort of forecasting error can have material consequences, if you know what I mean. So it’s important to get these forecasts, right, because if you’ve got those forecasts of where the economy is going wrong, then that can affect what the Bank of England does, or what the government does with its budget.

Tim Hughes  1:05:41

Yeah. And it seems to be human. The human influence, which is the most unpredictable, or the, the element that is most likely to bring around an incorrect forecast.

Gene Tunny  1:05:53

Yeah, I mean, I guess the human element and yeah, I mean, all sorts of things. But the problem is that the economy Yeah, I mean, ultimately, it’s about humans, because they’re, they’re the the units in an economy. But the economy is so complex, and so many moving parts, it’s just very difficult.

Tim Hughes  1:06:13

There was some, also, with the second part of it, the climate, econometrics, which was fascinating, I didn’t realise the extent to which Sir David had been involved in that. And so he was very deeply involved, and it was really interesting, that part. And I know we’ve talked about climate and getting to net zero and the the challenges faced with that, and the changes in the technology that is driving us towards that, which is obviously an ongoing and very interesting subject. And I have to say, so I made a, I was trying to recall this information that our friend John Atkins initially mentioned to us about solid state batteries. So I was trying to remember what it was exactly. So this, these is the one of the new generation of batteries, which, you know, is still in development. So we’ll link in the show notes, I found something from the Guardian of July 2023 that explains a little bit more about solid state batteries.

Gene Tunny 1:07:00

Oh, good. So what does it say?

Tim Hughes 1:07:05

It says, just briefly, that basically Toyota has made a breakthrough that will allow it to halve the weight, size and cost of batteries, it would be that we are, da da da make batteries more durable, and believed it could now make a solid state battery with a range of 1200 kilometres or 745 miles that could charge in 10 minutes or less. And the company expects to be able to manufacture them as soon as 2027. So this is obviously not, it hasn’t happened yet. So this is a projection. But it seems that they’re quite close. So this is the sort of, I saw this a few months ago, it wasn’t the Guardian article, it was something through ABC, I believe in Australia. Along those lines of about Toyota has worked with solid state batteries. Clearly, there’s technology being, you know, pushed forward all around the world on different areas, and which ones come to the fore or make it to market like, you know, we can only speculate. But it certainly seems that there are changes coming and more efficient, effective ways of storing energy and producing energy, that are all moving towards that target of net zero by 2050.

Gene Tunny  1:08:16

So this is something that’s better than the lithium ion batteries. Yeah.

Tim Hughes  1:08:21

And like everything else, there were problems at the beginning that they’re trying to work out. Yeah. So yeah, it says that for benefits compared with liquid based batteries. I think one of them was I saw that it doesn’t, they don’t burst into flames as easily, which is a good thing, like so when they say there’s no spills, for instance, from a solid state battery, if they get in a prang, or whatever may happen. I mean, I’m sure that there’s pros and cons with most new technologies. And I’m sure there’s none. You know, it’s no different with solid state batteries. But it seems to be one of the ones that’s coming through, it’s been around for a little while, and it seems to be progressing. But it’s just one of those areas that by the end of this decade, it’s going to be very different. And of course, by 2050, there’ll be things we haven’t even heard of yet, that will be key parts of the whole target net zero target,

Gene Tunny  1:09:10

We might have to get someone on the show who can explain to us batteries, solid state versus other types of batteries, because I’d be fascinating to know about the technology and what minerals are required. Right? Because I mean, you had that conversation with Guillaume about the Dark Cloud, wasn’t it? And that’s, you know, the, the fact that we do need to mine all of these, these critical minerals and that’s that’s got consequences, of course. So yeah, we’ll be good to have that conversation. Tim, one of the other things I found fascinating, yeah a couple of other things in the conversation. I found David’s point about all the technology that was available at the end of the 19th century. I thought that was fascinating. That was fascinating.

Tim Hughes  1:09:55

I didn’t I didn’t know that at all. That surprised me. It surprised me big time.

Gene Tunny  1:09:59

Yeah. yeah. And also the point about nuclear energy I was, yeah, that was really surprised by that, that he was so positive about it and thought it could work here in Australia, and that perhaps some of the concerns that we have in Australia, about nuclear energy are misplaced.

Tim Hughes  1:10:20

So that was specifically modular.

Gene Tunny  1:10:23

Yeah, the small modular reactors, and he’s saying they’re a lot safer. And this is something I talked about Ben’s, I talked with Ben Scott, about a couple of years ago, I think, on this show, the potential of small modular reactors, I though that was good that David brought that up.

Tim Hughes  1:10:39

Yeah, that was interesting. I hadn’t actually heard of that before. And I know that we’ve, like spoken about it before with Josh Stabler, for instance, with the the likelihood that there’s going to be different solutions to the energy provision in the future. So it’s not just going to come from one main source it’s going to come from most likely several different ones. So if modular nuclear power stations are a part of that, that’s quite possible. But it’s clearly going to be not just one thing. And just on that subject as well. There was it was mentioned about graphene, David mentioned, oh, yeah, I know this, that’s come up in a conversation we’ve had before here in Brisbane. There’s GMG, who are involved in that, here in Brisbane,

Gene Tunny  1:11:23

with GMG. So G stands for graphene I guess, and there’s…

Tim Hughes  1:11:27

Graphene Manufacturing Group. And so it’s in the space of renewable energy, and this whole push towards clean energy.

Gene Tunny  1:11:35

But what’s graphene got to do with it? Because graphene is a material, isn’t it?

Tim Hughes  1:11:39

Very good question, Gene. And this is something that I will get back to you as soon as I know. Yeah, because this is actually my solid, solid state battery moment in the in the wrap up, I managed to get another one in. So we’ll put something in the show notes to do with the graphene, but I know it was, it came up in a conversation we had with

Gene Tunny  1:12:02

ah apparently it’s going to create products with a better efficiency than the existing ones.

Tim Hughes  1:12:07

Yeah so it’s part it’s part of the all of this emerging technology towards better energy storage. Like most other things, it’s happening in many different parts of the world at the same time but we do have this, this company in Brisbane,

Gene Tunny  1:12:19

it looks like Yeah, yeah. Sorry Tim I just noticed it looks like someone’s built a graphene solar farm. So it looks. Okay.

Tim Hughes  1:12:25

Yeah. So to be to be explored, like, because it’s not something I know a great deal about, or, you know, so I think that w’e’ll definitely will, will earmark that for the next conversation we have about clean energy and where that’s going.

Gene Tunny  1:12:36

Yeah, for sure. Because this is it’s an ongoing issue. And I mean, the conversation, this isn’t going away. And you look at this northern hemisphere summer, and yeah, I mean, that’s just going to intensify this conversation, I think. Yep. Yeah. Okay. The other thing I thought was good about the conversation with David, I liked your question about AI and what’s happening with AI? And David pointed out, well, what they do, their algorithm, their automatic model selection algorithm, their auto metrics, that’s a form of AI. I thought that was a good point that he, he made there. Yeah, yes. Yes. So yeah, it was good question. So all in all, what a terrific conversation. And yeah, I really thought Sir David was amazing. He’s someone I would love to have here in Australia participating in the Australian policy debate on energy in particular, I think he could be that he could provide that sage perspective. He’s someone you’d pay attention to, he’s someone who’s very thoughtful, you know, good communicator, and as well as being a real gentleman.

Tim Hughes  1:13:43

Yeah, I really enjoyed it. And I found it very eye opening. And yeah, I think there’s, like you say, it’s an ongoing conversation. So it’ll, it’ll keep evolving. And hopefully, if we can, maybe they’ll be a round two with Sir David to continue that conversation.

Gene Tunny  1:13:59

We can only hope, so Tim, anything else before we wrap up this, this debrief?

Tim Hughes  1:14:05

No, I think I think I should stop while we’ve still got enough room in the show notes for

Gene Tunny  1:14:13

you introduce a new concept – then I ask ‘Tim that’s fascinating can you tell me more?’ Nope!

Tim Hughes  1:14:20

They say a little knowledge is dangerous. On this one I was lethal, but no, it was fun. I enjoyed it. And yeah, it’s it’s something that affects us all. And it’s something that’s changing very quickly. And so yeah, we’ll we shall return to that conversation no doubt.

Gene Tunny  1:14:36

Absolutely. Tim Hughes thanks for joining me on this conversation.

Tim Hughes 1:14:40

Thanks Gene.

Gene Tunny 1:14:43

Righto, thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it? Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


Thank you for listening. We hope you enjoyed the episode. For more content like this or to begin your own podcasting journey head on over to


Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business Full transcripts are available a few days after the episode is first published at Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Podcast episode

The importance of physical & mental health for top CEO performance w/ Andrew May – EP193

Andrew May, a leading Australian performance coach and host of the Performance Intelligence podcast, discusses the relationship between physical & mental fitness and CEO & business performance with show host Gene Tunny and his colleague Tim Hughes. Andrew shares insights into the areas he focuses on when coaching top performers, including CEOs and elite athletes. 

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

About Andrew May

Andrew May is CEO and founder of StriveStronger, a digital consultancy that partners with organisations to create cultures of wellbeing. He presents inspiring presentations and is recognised as one of the world’s leading performance strategists. Andrew works with a number of elite athletes and is the Mental Skills Coach for the Parramatta Eels National Rugby League Club. Andrew is a former middle-distance runner who was an assistant coach at the Australian Institute of Sport in Tasmania. He has worked with multiple Olympic/international athletes in track and field, tennis, swimming, hockey, netball, basketball and AFL; culminating in working as the Physical Performance Manager for both the NSW and Australian Cricket teams. Andrew has dual degrees in the body and brain – completing a Bachelor of Applied Science in Exercise Physiology (body) and a Masters in Coaching Psychology (brain). 

For further information about Andrew, check out his full bio:

What’s covered in EP193

  • [00:01:10] Physical and mental fitness in performance. 
  • [00:04:24] Well-being and Performance. 
  • [00:08:21] CEOs and high performance sport. 
  • [00:10:57] Male vulnerability and authenticity. 
  • [00:13:14] Life’s purpose and meaning. 
  • [00:16:49] Building sustainable operating rhythms. 
  • [00:19:59] Slow brainwave patterns.
  • [00:23:00] More on building sustainable operating rhythms. 
  • [00:26:24] Sleep and recovery for CEOs. 
  • [00:30:16] Wearable device metrics. 
  • [00:32:57] Cycling culture and health. 
  • [00:38:29] Longevity through lean muscle. 
  • [00:39:40] Biological age and VO2 max. 
  • [00:43:24] Performance Intelligence Mastermind. 
  • [00:47:26] Work-life balance. 
  • [00:49:46] Managing stress for executives. 
  • [00:53:12] Wearable tech and data analysis. 
  • [00:56:32] ROI. 
  • [01:01:00] CEO Health Coaching Benefits. 
  • [01:04:02] CEOs and Health Performance.

Links relevant to the conversation

Andrew’s podcast:

Andrew’s book Match Fit and related online course:

Regarding DEXA (dual x-ray absorptiometry) scans:

Studies mentioned by Gene in his debrief with Tim at the end of the episode include the following.

Study published in Leadership Quarterly in June 2023 “CEO health”:

Here’s the abstract:

“Using comprehensive data on 28 cohorts in Sweden, we analyze CEO health and its determinants and outcomes. We find CEOs are in much better health than the population and on par with other high-skill professionals. These results apply in particular to mental health and to CEOs of larger companies. We explore three mechanisms that can account for CEOs’ robust health. First, we find health predicts appointment to a CEO position. Second, the CEO position has no discernible impact on the health of its holder. Third, poor health is associated with greater CEO turnover. Here, both contemporaneous health and health at the time of appointment matter. Poor CEO health also predicts poor firm outcomes. We find a statistically significant association between mental health and corporate performance for smaller-firm CEOs, for whom a one standard deviation deterioration in mental health translates into a performance reduction of 6% relative to the mean.”

Leibniz Information Centre for Economics & Centre for Financial Research (CFR), University of Cologne working paper titled “Does CEO fitness matter?”

Here’s an excerpt from the abstract:

This study provides evidence suggesting that CEOs’ physical fitness has a positive impact on firm value, consistent with the beneficial effects of fitness on, e.g., cognitive functions, stress coping and job performance. For each of the years 2001 to 2011, we define S&P 1500 CEOs as fit if they finish a marathon. CEO fitness is also associated with higher firm profitability and higher M&A announcement returns.

The importance of physical & mental health for top CEO performance w/ Andrew May – EP193

N.B. This is a lightly edited version of a transcript originally created using the AI application then checked over by a human, Tim Hughes from Economics Explored, to pick out the bits that otters might miss. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory, evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show.

Hello, thanks for tuning in to the show. In this episode, my colleague Tim Hughes and I chat with Andrew May, a leading Australian performance coach. Andrew’s worked with sporting teams and he now coaches CEOs of major companies, including the CEO of one of Australia’s biggest banks. Andrew is also the host of the Performance Intelligence podcast, which I can highly recommend. Tim and I had a great chat with Andrew about how physical and mental fitness can translate into CEO and business performance. We got some great insights into the areas that Andrew focuses on when he’s coaching top performers, whether CEOs or elite athletes. Okay, let’s get into the episode. I hope you enjoy our conversation with Andrew May.

Andrew May thanks for joining us,

Andrew May  01:33

Good to chat looking forward to this conversation. Yes,

Gene Tunny  01:36

yeah, it’s great to connect with you Andrew, Tim’s you know Tim from way back. And Tim has put me on to some of your work. And I’ve been reading MatchFit and enjoying it. I guess what prompted this conversation was an article in the financial review a couple of months ago, which was about Generation X Men and given I’m one of them, that was, I took note of it, how they are tackling their mortality. And it mentioned you and to Tim, it already mentioned you to me and so I noticed it and it said you’ve been coaching CEOs of ASX 50 companies, so major corporations in Australia such as, Matt Comyn, the CEO there and then it got me thinking. I’m wondering, how do you go from being a performance coach to the Australian cricket team? If I’m getting that right to coaching CEOs? Can you tell us a bit about that story, please, Andrew?

Andrew May  02:35

Yeah absolutely but before I do, if you want to know about being match fit, look at the guy sitting on your left. I first met Tim 20 years ago, he still looks the same full head of hair. So it’s great to reconnect

Tim Hughes  02:47

smoke and mirrors.

Andrew May  02:50

So how did I end up coaching executives and doing mental skills for elite athletes around the world? There was no definitive plan, Gene, and a lot of your listeners are going What do you mean, you didn’t have a 20 year plan? No. I was a good athlete, not great. I won multiple state championships but never won at the national level had a scholarship at the IOS in Tasmania. And we moved down to Hobart, which was wonderful in my early 20s. And I just finished studying exercise science, I had a physiology base and then went to the Institute of Sport. And it was a great learning in that high pressure environment. And when I look back, I got to the level I believed I could get to and I believe coaches should coach what they’re good at or what they’ve stuffed up. And if you can combine the two, you’ve got a really interesting mix. I left talent on the track literally. For any athlete, any executive I work with my real fuel is to help them fulfil their potential. So back to in Hobart. As a runner in Australia, you don’t get paid a lot of money. Unless you’ve been Craig Mottram or perhaps Sally Pearson So I had to supplement my income back then it’s not politically correct. And I used to walk fat blokes. It’s now called personal training. So the clients I had that’s Timmy when I met you, when I moved back to Sydney, after I finished down in Tasmania, and during a lot of the clients, I were training, they would lose 10 or 15 kilos. And then they’d say, Do you realise I’m not as cranky with my wife or my husband on the weekend and the kids are not saying I’m an A hole, and I’m actually conscious of their school sport. And I’m not just thinking about what’s going on here and I’m making better decisions and I’m more creative and we’ve opened up these other options in Asia. What have you done to me? I don’t know. Just keep walking. Don’t drink as much alcohol on the keep swimming in the ocean. So I’ve been really started to look into Whoa, there’s a link between well being physical and psychological well being and executive performance that was 20 plus years ago. When I moved back to Sydney. As you mentioned, I was working in cricket as a fitness trainer for the New South Wales Cricket team for 8 years And then an amazing opportunity was to travel the world with the Australian cricket team. For a couple of years did some work with the Sydney Swans. I’ve always danced between corporate work. And because the personal training then evolved to corporate work, because the men and women I was training ran companies and they said, Hey, can you do this for our company? And, Tim, you know this with a personal trainer background, you walk in there and go, how on earth do I run a programme for 100 people, well if you’ve been doing a one on one, you just work out how to add group dynamics and amplified, because you’ve done a lot of the reps and sets. So that’s really the evolution Gene, studying and then as an athlete, and then experience that’s over 25 years and I added psychology I did a degree a master’s in, in coaching psychology, I finished that about five or six years ago. And that not only gave me confidence, because when you’re in sport, you’re actually not coaching at the higher level you’re often telling, because I wouldn’t say to my cricketers ah guys, what do you think? Let’s have a dialogue around that. It’s like do this and get on with. And I found when I shifted and some executive started to say, Hey, can you come and work with me, some of them left because I was very didactic, here’s what you got to do. I was treating them like an athletic. So I really needed to learn about conversations and listening but still having a bit of a hard edge. And I say that to my clients, I’m not the coach who’s going to sit down with you have a cup of tea and sticky buns and talk about everything. That’s great. We’re going to talk about real challenges and have some of the robust conversations. But I was very, one way, here’s what you do rather than listening. So 25 years later, I look at a blend of science, exercise physiology, primarily about the body, coaching psychology, primarily about behaviour change and the brain, working in sport as an elite athlete, but being good not great and then working across multiple sports. And now I’ve gone back into sport. I worked for the last two years with the Parramatta Eels, as their mental skills coach, and I’ve signed on this year with the mighty Manly Sea Eagles. And I work with a range of other aspects. One of those being Tim Tszyu, the wonderful young boxer who’s got another fight in two weeks. And then experience in the corporate world has given me a unique set of skills that as I said, I’ve never targeted to say, hey, here’s a career plan. And I just find that blend between science between high performance sport and between having some experience really helps to conversations with some of those high end executives, because they’re just like, the three of us, they have challenges, they have problems, they might be leading a company, but that doesn’t mean you know how to lead your thoughts and your body and everything else in between.

Tim Hughes  07:37

I was gonna ask you with that jump to training CEOs. Obviously it attracts a certain personality type, alpha males or females to that role. How did you go in? Because you mentioned about, you know, a didactic approach? How did you manage to work that in with different personalities with the stronger personalities to be able to get them to change?

Andrew May  08:01

Stronger personalities I found easier, because I’ve had a number of strong personalities in sport

Tim Hughes  08:07

Right is there a is there a strong correlation or comparison between high performance sport and CEOs?

Andrew May  08:14

Yeah, it’s an interesting question. I think there’s a correlation. Up until 10 years ago, we’ve rounded it out. Now 10-15 years ago, a number of the CEOs or execs I’d work with, they’d been taught even if it was just subtle messaging that you don’t bring your full personality to work so leave your shoes at the front door and also leave your full personality and come in here and just be robust and be strong. A coach I had that really shaped me and he’s still a good mate of mine is Steve Rickson who was a wicket keeper and then he was coach at New South Wales Cricket and Stump has evolved a lot over the years as well. We laugh about this. The my interview with Stumper back at New South Wales Cricket and went for about five minutes. I was wearing a suit. He rocks up. He’s in a tracksuit and I said hello mr. Rickson. He says that’s my dad. Call me Steve or call me Stumper. Do you have a nickname? I said yeah it’s Maisie. I said is there a job description? This was my first role in sport back in Sydney as the strength and conditioning coach for New South Wales Cricket Team – can I swear on your podcast I do. Like I said job description. You come to a session tomorrow the guys have got a recovery session if they like you stay if not fuck off. And I said is that it? He said I know there’s one other rule. So what’s that? He said it’s rule number one. What’s that? Don’t ever be late. Because if you’re late fuck off, rocked up the next morning. So nervous, like I was 45 minutes early. And seven, eight years later, I’m still there. And in the initial couple of years, Stumper would be like alright, we’ll do the fitness and now Maysie fuck off. It’s cricket but to his credit, he saw how it was integrated it wasn’t just to fitness and then play cricket. So I had some great role model models like Stumper who were quite didactic, who were very strong. So Tim, I found that personality I knew, and I knew with a lot of those people, like Stumper underneath it all he’s a, he’s a teddy bear. He’s a lovely guy. And he’s very connected and very warm. The person I found more challenging was the person who wasn’t as forceful on that. And they maybe weren’t telling me exactly what was going on, but find someone false. Well, at least it’s out on the table and have a bit of a healthy banter. And with that personality pushing back, or at least talking to them, and having that dialogue, a respect comes, where I was struggling was if I had someone who wasn’t open, or who maybe was struggling, I didn’t know the levers to open up that conversation.

Tim Hughes  10:43

So that’s people armoring up basically, and not really wanting to let anybody have a look into the inner workings of who they are. I’ve seen a shift towards a greater vulnerability, and then acceptance of being vulnerable and being authentic, which has been really positive. And I think you’ve displayed that really well through your podcast, which is great. I know, I’ve got so many great episodes that I’ve enjoyed. I’ve had days when I woke up miserable and grumpy. And by the time I’ve got to where I’m going, I’ve listened to 20 minutes of a podcast with one of your guests and is back on you know, it’s great, because it’s,

Andrew May  11:17

I’m glad you got that sequencing, right. Better after listening podcast. I woke up, I listen to your podcast, and I felt tired and grumpy. So good boy getting the sequencing, right. Yeah.

Tim Hughes  11:29

But I’ve seen a definite shift in that acceptance, especially with guys to be able to, to open up. And it’s it’s not seen as a weakness to say if you’re struggling with something, or to be vulnerable, which is definitely a good thing now.

Andrew May  11:43

Yeah for the three of us, our generation. Our dads weren’t as expressive in their emotions. And I noticed with my dad, now he’s in his mid 70s. He tells me he loves me every time I get off the phone. Now, dad didn’t tell me he loved me to my mid 20s. The first time it was really awkward. And so it’ can be’s taken me a number of years, I was in my mid 20s. And now when he says that I’m saying back then I love you. Yeah. And I feel it and it doesn’t feel awkward. And I’m sure lots of people listening will go Ah he’s talking to me. I feel like that as well. Up until 40. When did I meet you Tim?

Tim Hughes  12:19

I reckon it was around 2008 2009?

Andrew May  12:23

Yeah, so it’s just before I went through a couple of years before I went through marriage breakdown, right. And at that stage, the persona I had, I was selling I was working to on TV, I’d written a book, I was doing some speaking, but I set myself up as a high performer because I’d been good at school. I’d been good at sport, and then I’d been up and sold a business. And I was good at that. So people got me because I was in inverted commas high performer. And then I went through a marriage breakdown. I was 40, I had two young kids from an Irish Catholic background. And I walked around I now know I walked around with functioning depression. And I’d hop on stages and talk about well being and all this stuff. And I would shift into a state and then I go into back into my hotel room and burst into tears. Who had no wife or partner. No kids permanently. It was half the time. No house living in apartment, no dog no purpose, no meaning, because I built this game of this this story that life is all about winning and achieving. And then what happened when I fell down? So the two years having to pick myself back up and drop the bullshit drop the facade. My best mate Mario, who I finished school with in Dubbo is a great man. And he said to me, Andy, I know you’re not okay. He asked me a question. I won’t say what it is. And I answered. He said, I know you’re not okay. Go see someone. We laugh about it now. And I saw a wonderful psychologist Jill McNaught who helped me unpack the schema I had that, that winning and life is about all these wonderful achievements. It’s actually also about how you pick yourself up. So Tim, and I sort of talk about the evolution of science. Yeah, science helps. And then working in sport helps. But where I think I really get traction with an exec or a CEO. When I say to other bits on my B side, so we often lead with the A side – you both remember cassettes – that’s your top hits. And my B side is I had cancer, and I judge that on my daughter’s age I had cancer, a melanoma on the left scapula removed just before Mickey was born. She’s now a gorgeous 15 year old. But with cancer I lived my spiritual father a man named Bruce Eaton who was my masseur in Hobart and Bruce died three months after he was diagnosed with cancer. He was diagnosed two days after me. So when I went to say goodbye to Bruce, I thought, oh my god, the DICE can roll different ways. Why is Bruce not here? But then I got on with it. I didn’t really learn from that. It was like I had cancer and lived but I’m going through a marriage breakdown the story of this scheme arrived built in from an Irish Catholic background, mum and dad are still together. After 50 plus years, I felt like such a failure. So if I saw you Tim in those early years, I probably would have avoided you. Because I didn’t want to talk about where I was. Or I would have made something up. And then I just now go, Hey, we all have highs and lows. And that’s part of the human experience. And when I talk to an exec like that, especially men, they go, here’s my story, and then the bullshit facade comes down, and they’re real. And then you get on to some practices and some coaching around it.

Gene Tunny  15:36

Andrew, can I ask, I’m interested in that, because I can see how you having had that experience that can help the your advice? And well your empathy? And then your advice to the executives? What do you find are the biggest things that they need to work on? Are there commonalities or is it different across executives? What are some of the big things that you’d work on with them?

Andrew May  15:56

Yeah, it look, I did learn a lot from that Gene from that experience, but it was expensive. So

Gene Tunny  16:01

Oh, yeah, yeah.

Andrew May  16:03

When you go through a marriage breakdown, anyone who has, it’s extremely expensive, and not just from a financial from an emotional from every our spiritual point of view. So I like to tell my male and female clients who lean in and listen, because you can save seriously can a lot of people can save a relationship breakdown by putting some of these building blocks into practice. But there’s five when I talk about leadership capacity. And these are the essential building blocks. If you don’t do this, we don’t get to the fancy stuff. Because I’ll often get someone come to me say, I want to do presentation skills. Can you? Can you work with me on high order mental skills I had someone recently said, Look, I know you’re working with Tim, Tszyu. And I’ve seen a real shift in him. Can you teach me with confidence? I might. Yeah. Let’s start with storytelling. And the narrative you tell yourself. So we’ve started the basics first. So the five basics are number one is operating rhythm. And we’ve got to get the the work and the year in balance. But if I look out of my office, where I’m recording from the beautiful sunny day today, the sun rose this morning, it’ll go down tonight tides rise tides fall, there’s this natural rhythm in nature. And we need a similar rhythm in the corporate cycle.

Gene Tunny  17:12

So you’re in Sydney. Are you Andrew? Sorry, you’re I’m in Sydney. Yeah. Yeah. By the beach. Are you?

Andrew May  17:16

I’m in Lavender Bay. Yep. Yep. Yep. So the first one is operating rhythm. The second one, we look at his energy balance. And this is where I’d say, Gene, what’s draining your energy? actually need a boost of energy champ? No. First, let’s put a plug in the bath and stop you draining energy. And that can be relationships, very pertinent to your great podcast, finances. Make sure you’re basic on wealth management and spend less than you earn. Where else are you draining energy, and then we can look at boosting energy. The third one I’ll look at is downregulation. And I blame Pierre de Coubertin, the little Frenchman back in 1894, who carved out the Olympic motto Citius Altius, Fortius. Do you both know what that means? How’s your Latin?

Tim Hughes  18:07

I remember you talking about this on one of your podcasts. And I know the bit that you’re gonna say, which is missing. And I can’t remember exactly what it is. But I know the missing bit faster, higher, stronger. And rest is what’s missing.

Andrew May  18:18

There’s no rest and recovery. So the Latin word for that is Rika partea. So if we could go back to 1894 Pierre de Coubertin, love what you’ve created with the Olympic movement, but you’ve missed recovery champ. The fourth one is mental skills. If I said to both of you, if you want to get your body fit, fast, flexible and strong. What do you do? Go to a gym, join a sport, get a personal trainer. If you want to get your brain fit, fast, flexible and strong, what do you do go to the mental skills gym. And then the fifth one is using wearable tech to track it. So they go through the five number one is get a sustainable operating rhythm. Number two is get the right energy balance, get rid of what’s draining energy. And then we’re going to amplify what boost energy. Number three, we look at downregulation which is Psychological detachment and parasympathetic activation. So that rounds out the Olympic motto. Four is mental skills and five, get a wearable. So you can get some KPIs to see exactly where your body is tracking. They’re the building blocks and when I get someone on that, I know they’re going to be sustainable, and they’re going to be able to get to that next level.

Gene Tunny  19:23

I keep forgetting what parasympathetic means. Andrew, are you able to explain what what you mean by Paris? Was it parasympathetic,

Andrew May  19:31

parasympathetic, so stress is sympathetic nervous system recovery is parasympathetic. So parasympathetic just means everything goes down. So heart rate drops, okay, your restore your recovery rates go up, your digestion drops down, your blood pressure drops, your muscle, contractile, it all drops. But interestingly, when your body down, regulates and gets into parasympathetic, one thing goes up. Slow brainwave patterns. So for your cerebral people listening to this going, Well, why do I need to do all these fitness stuff or body stuff, or when you slow down your body? Just slow brainwave patterns go up that slow brainwave pattern. So when we get out of beta, which we would be at now thinking, talking, reflecting, and when you drop into those, those Alpha brainwaves, that’s where you come up with your best decisions. That’s where you problem solve. And that’s where you get creativity. So it’s getting this nice dance Gene between your body up and down. But we’re geared. Everything’s up, everything’s about regulate, and recovery, or downregulate is seen as a weakness. So that’s rubbish. It’s a strength.

Gene Tunny  20:43

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  20:48

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you Frank and fearless economic analysis and advice. We can help you with funding submissions, cost benefit analysis studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world. You can get in touch via our website, We’d love to hear from you.

Gene Tunny  21:18

Now back to the show. Can I ask you about this operating rhythm? I think I understand what you’re talking about. Because I’ve read MatchFit. And what I liked about that, as you talk about how in, if you’re a sports person, you’ve got the season, you’ve got the off-season. And then you’ve got the game day, and then you’ve got the days of recovery. So it’s built into the the actual game itself or the or the sport? Are you encouraging people to think like that, like if I’m a business executive, I’ve got to be thinking about that at work, I just can’t be full on all the time, because I’m going to burn out, I need to have the periods, those performance moments, as you call them. And then in other times, I’ve got to take it a bit easier. So I can recover. Is that what you’re

Andrew May  22:02

Yeah, absolutely. Taken it a bit further since MatchFit that was the genesis of this thought. But if you look at your year, look at a calendar, there’s two components, which have really influenced this one is having kids, I’ve got four of them. So there’s something called school holidays. So school terms go for 10 or 11 weeks, unless if your kids are at private schools, you pay more money and they’re at school less, think about that. It’s like a Seinfeld episode. Let’s say you go hard for 10 or 11 weeks, and then you have holidays, you might be able to take one week, five days. So you downregulating then go hard for 10 or 11 weeks, and downregulate. So that you understand as a parent with a school term. Second one was from working with companies like Comm Bank, at the executive level, it’s called a corporate reporting cycle. But every quarter, they do reporting, so they have a board meeting and then wrap out that quarter, and then a lot of the execs downregulate for a week, so And those two patterns are in sync Gene. So for anyone who works at the higher level, and if you have kids, or if you just understand the education cycle, it’s been built in on sustainability, where we stuff it up, because we go hard for 10 or 11 weeks. And we think more is more. There’s a term in the military and I’m blessed to do a lot of work with the Navy now. It’s slowing down in order to speed up. Yeah. So you’re down regulating you’re giving your body and brain chance to recover. And then you’d bounce back up. So with the podcast, as an example, my podcast Performance Intelligence, we do 10 episodes, yeah, four times a year. And in between the two weeks, we down regulate and have a break. And then I have summer off. Now I know I can do that podcast for years. But with the workload and other stuff I do. If I was punching out a podcast every week, I’d find it too much. So that’s an example where I’ve set up the operating rhythm of the podcast, to our business operating with them. And it works. Yeah.

Tim Hughes  23:59

And then you’ve got that on a micro level as well on a daily basis that you’d still need to down regulate on regular building habits, I guess into into your day. So you can do that on a in a 24 hour cycle.

Andrew May  24:11

sounds like the personal trainer physiologists coming out of you there Tim. So you gotta go macro. So go, Yeah, your quarterly rhythm. And then there’s a monthly Well, there’s an annual rhythm. There’s a quarterly a monthly, a weekly and a daily. So let’s just bookend we’ve done the big, big annual, then every day fully in a couple of moments to just help you even micro recovery. And you can do it in 30 seconds or three minutes. That’s all you need, anyone listening to this who’s too busy to do some activities for 30 seconds or three minutes. You’re You’re fooling yourself, and you’re operating inefficiently. If you don’t build in some moments to just switch off and then go again

Tim Hughes  24:53

It’s a case of prioritising then the importance of this can’t be overlooked but too many times I’ve done it myself, as I’m sure you have where you’ve overlooked it in the past, and you just keep burning at both ends. And before you know it, you’ve run out of wick.

Gene Tunny  25:08

Yeah I mean, what I’d like to ask Andrew is, does this apply to all businesses? Because there are some businesses like you think about investment banks, there’s almost as expectation in investment banks that you just work. You’ll do all these all nighters and, and just work yourself to death almost. And there’s a real sort of macho culture in some of these investment banks. Can you do that? Is that something that’s, I mean, obviously, it’s not sustainable. But I’m just wondering, like, what sort of advice do you give people? Do you advise that look, you just got to try and get rid of that culture in your organization’s because it’s not healthy? Or do you recognise it in some places such as investment banks, if you’re trying to get a deal? Together? You’re doing due diligence on a big deal? Would you advise? Okay, you can do that? Sometimes, but then you do need the brakes. I mean, how do you? How do you balance that out? I mean, are there times when you do have to act in that extreme manner? Or work? Really, you know, do an all nighter every now and then?

Andrew May  26:10

It’s giving me the curly questions like that aren’t you? Let’s answer that on three levels. Yeah, let’s answer that on science. Let’s answer that on outliers. And let’s answer that on money, the big M. Yeah. Science shows the majority of people need about six and a half to seven hours of sleep. Yeah, science would show that most people can probably work 45 or 50 hours a week, if they’re engaged and get recovery, and they’re going to be sustainable. outliers and working with some CEOs shows that that’s not for everybody. Some people don’t need that much sleep. But if I look at those names, you mentioned earlier, Matt, Nick and Shelley they all prioritise recovery, and they are all wonderful students, I think there’s no, no surprise that some of the execs I work with who perform at a higher level, when you look behind the scenes, you’d be amazed some of your listeners would be amazed the detail at which some of these people have gone into understanding nutrition, and personalising Tim, their nutrition based on their profile. And they understand heart rate variability, they understand terms like vagus nerve, all these big technical terms, but they get it, one they know. But then they know how to use it. And that’s the experience part. So yeah, I’ve worked with some, and I think to be a CEO of a large publicly listed company, or a big private or a startup, you’ve got to be a little bit deranged. And I mean that with respect, because you’ve got to be super passionate, you’ve got to put any notion of balance, and I don’t like the word balance, but you’ve just got to go, I’m going to pour my heart into this and do 70,80 90 hours plus, and do that for an extended period of time. And that often leads to the third one. And if you’re going to do that, and make 5,7,8, 10 million a year, and some of the people I work with, I’ll say, but what you’re going to do, I’m going to help you, you can’t do this for the rest of your life. But if you’re going to retire and have 20 or 30, large in the bank, go for it. But just make sure you don’t do too much damage now. So that’s why I’m a realist coach, I’ll look at right What does science Tell me? Where are you there? What are your physiological points? So what’s your psychological capacity? And then what’s the upshot? Because we’ve all seen people only focus on the money and then they burn out. Yeah. And that’s a reality. Dr. Tom Buckley, who co-wrote MatchFit with me, we work and we have worked with a number of execs over the years, who’ve pushed themselves that hard words like downregulate words like operating rhythm words, like mental skills, words, like you know, using wearable tech. Words like energy balance, they think it’s a crock of shit. But they get to a stage where then they actually have to leave the career they’re in. And the research shows there’s no practical experience, because they’ve gone their heart. They’ve cooked themselves that much. There’s no going back. So at times during the year, I’ll go hard. Part of my job is keynote speaking. So in February, mid year, and October, November, I’m for sale, like I’ll be on planes, I’ve been overseas, as well. So if I’m complaining end of October, I’m so busy, I’m so tired then get a new job. So I can do that three times a year. So I now know what I need to do to get up for that. I then recover. But then I drop intensive in the rest of the year. So that’s that experience working out. What can you do? How hard can you go? And it’s a real art. There’s science in it. But then it’s an art.

Gene Tunny  29:37

Yeah. On the wearables what sort of wearables are you talking about? Do you mean a Fitbit? Is that what they are?

Andrew May  29:43

Yeah, look, I wear a Garmin and I’m aligned to Garmin. But whether it’s a Fitbit or Garmin, a lot of people are wearing the whoop bands as well, which is really good on heart rate variability. What have I missed on this Timmy

Tim Hughes  29:58

Oura rings, I don’t know if they have the same capability as those ones you’ve mentioned, but they look cool.

Andrew May  30:04

They do look cool look, and they’re all they’ve all got different pros and cons. Gene what Doctor Tom and I look at on wearables, there’s a couple of key metrics, when I’m working with a high end exec one is, I want to know their resting heart rate, that shows me how well their body is adapting to the physiology or to the demands of their role. Also, when you’re sick, or stressed or inflamed, your heart rate will be up. So you can see that there’s something wrong in the system. And then you know, to back off a little bit, the second one I’ll look at is sleep. Now, the wearable devices aren’t super accurate, but you get a pattern around that. Yeah, we’ll look at exercise and minutes, because we all sit down way too much. So the actual time and exercise we need is a hell of a lot more than it was because we’re all so inactive. I’ll then look at heart rate variability, if the device has one. And then to two simple ones. And you can go off and get a DEXA scan, which Tim you and I do with our clients. But you can also just know, what’s my weight? And what’s my waist. So personally, I know I want my weight to be at around 90 kilos. And my waist at 85 or 86 centimetres. And that’s it. I’ve kept that there for years. So if my waist balloons up after Easter, after a holiday after whatever, you then know what to do, just to get back to that setpoint.

Gene Tunny  31:25

Right. What’s this thing? A DEXA? Scan? Is it did you say?

Andrew May

Yeah, so Timmy what does it stand for?

Tim Hughes  31:29

That’s a very good question that I can’t answer, right now! I’m gonna put it in the show notes. It’s alright, Its body composition. But it’s the most accurate way. Because it will give you the most accurate measurement of body fat bone density. Yeah, it’s a little bit loose on muscle. Because I did this on a I did a 21 day keto challenge for myself last year. And I was really surprised at how much muscle you can lose on a restricted calorie keto diet. But I challenged myself to do it, I lost almost 10 kilos. And I was so surprised. After the first week I did an extra DEXA scan, I threw another one in, you shouldn’t do too many. But I’ll put an extra one in to see what was going on. But it will measure your water, you know, your hydration levels. But you hold a lot of water in your muscles. And so it’s a little bit, it will come over as being muscle loss. Whereas in fact, it wasn’t quite that dramatic. Yeah, because as soon as you then recharge with carbohydrate, you absorb more water.

Andrew May  32:32

The big the big thing that does show to two or three metrics I like with a DEXA. And I’ll again tell my high-end execs, go get a DEXA done every six months, bone density is really important. So it picks up bone density. And I’ve had a number of Mamils but cyclists to cycle hips, but they’ve come back and their bone density is quite poor because they’re not getting that impact. So that leads to change in their programme. The middle aged men in lycra who scare women and young children at Coffee Shops

Tim Hughes  33:01

everybody really

Andrew May  33:02

beautiful. themselves. So bone density from a DEXA. fat mass is a big one, because you really get a true fat mass. But look, you don’t need to do that. Go do the simple ones, what’s your weight? What’s your waist and get a get a set point.

Tim Hughes  33:18

And that that measurement, you mentioned is absolutely right like that single measurement around the waist will tell you everything else that’s going on. So if it’s going out, you know that everything else is going to be increasing somewhat. And it’s it’s the canary down the mine as well. It’s the first one, if you start to put weight on, it’s the first place to for it to show

Andrew May  33:38

and why that is in my five for those base building blocks. You got a lot of really intelligent high end cerebral men and women listening to this podcast and advice. So tell me about your business KPIs, or we’ve got this metric. And we know customer side of this and here’s our market penetration and don’t just flip that back and go, Alright, what’s your resting heart? Why should I know my resting heart rate? Well, that shows how you’re responding to stress. Stress is awesome. As long as you have recovery or parasympathetic, what’s your exercise minutes, so we just really turned the language back here’s your KPIs to run project you, your body, your brain and make that efficient, and then business and everything else revolves around that rather than Oh, shit, I should look after myself. Do it first. Yeah,

Tim Hughes  34:27

I wanted to just about first of all, thanks for sharing your story. I really appreciate that. Because I know that that’s a big thing I didn’t realise about your cancer. So yeah, thank you for sharing that. And also, I wanted to expand on the, with the CEO, for instance being trained with a shareholder, a company, etc. Have you come across this at all, or is it something that’s been mentioned, where shareholders should be invested if you like in a healthy executive team? So for instance, if a CEO has been trained, if I was a shareholder I be quite happy about that. And don’t want tobe health-shaming anybody who’s not being trained or not being coached. But certainly I don’t know if there’s any stats, or if there’s ROI or data on this, where shareholders or companies can see a difference in the performance of the company with the performance of their executive team, or the health, the health and performance of their executive team.

Andrew May  35:22

It’s a dream that I have a dream, I think every allied health professional has is to show that when executives, physically, psychologically emotionally, every other ally, socially healthier, there’s a return on the bottom line. The data from US is, is the main data we look at. But you’ve got to understand the majority of US companies are self insured, so they need that data. So we don’t unfortunately have that in Australia. Tim, I’ll give you the flip side first. But I just used to think it’s all about being healthy and fit. But you could have a really healthy male or female executive, and they are narcissistic, toxic, aggressive arsehole. So where does that fit? Are you better to have someone who has gotten really good emotional regulation and good understanding of others that EQ and we look at social contagion theory, how you show up this how others around you show up. So if you show up in a nice state, and you’ve got this open or growth mindset, and you’re nurturing talent, others will do the same as well. I think if you get the balance of both, if you have health as a basis and I’m biased, right, I studied Ex Phys for years, I’d spent time with lots of sports. I absolutely know that when you have a physical base, and Dr. John Ratey, wrote about this in his book, one of the first neuroscientists to show, if you’ve got a physical base, you’re going to think better. But I just want to balance that out as well, because I have worked with a number of men and women who you know, they don’t have the body fat they want or they may not look in the mirror and flex, but they’re a wonderful person. And they’re really good at community and they got amazing citizenship. And I think getting the blend of both is optimal

Gene Tunny  37:06

This is a question I’m interested in, what level would you want to get a CEO up to? I mean, you know, you want to get them to a weight where they’re not overweight, at least. And there may be an ideal weight they’re shooting for but I mean, I’m just I’m just wondering, they don’t need to get to an elite level of performance athletically, do they or in the gym?

Andrew May  37:27

No, no, they don’t some some I work with do but I just say anything now you’re getting into territory, which is more around your goals, performance, your crazy brain, and it’s not actually going to help you. And it can be detrimental. It can also be really boring, like no one wants to sit next to the age group triathlete, vegan champion, dinner party, and they’re going vegan and not having dessert like it run away from those people. They’re boring as batshit. Right. So you also got to be normal around this. But two factors I want all my executive chasing. And this is linked to longevity, Dr. Peter Attia I’ve got his book up here, Outlive, which is a great book. And the two factors and then Dr. Tom and I’ve been saying this for a number of years, Attia backs that up but he’s just so articulate, you want to be chasing one, VO2 Max and maximum volume of oxygen per millilitre per kilogramme per minute. And a lot of the watches will tell you that, two, if you want to chase muscle, lean body mass. So on all the programmes that I do, and Tim, I can’t help myself, I still get on the tools a bit. But I cut out the long chunked bike rides, you don’t need to do three or four hour bike rides. And in fact, that has some problems around that. But do a shorter sharper one to get the VO2 max up, but then get in the gym, and lift. So if you’ve been doing that blend between some short, sharp exercise and some weights that’s shown to really help with longevity. Now, another marker on this, which is not aesthetics, it’s more around science is biological age. So with my business, StriveStronger where you have and a lot of people have a biological age, but Dr. Tom Buckley, Associate Professor at Sydney Uni and some leading neuroscientists, psychologist, physiologist, behaviour experts, we’ve come up with a score. It’s the live life score, which is a biological age, and a mental fitness gauge on the biological age and Timmy you and I’ve been doing this stuff for years. I want all of my clients to be five years younger. Let’s say you’re 42 your birth certificate 42 I want your biological age to be 37. And that buffer in physiology allows you to have extra capacity, extra energy for demands you don’t know is coming. Who was ready for lockdown and COVID No one. So if someone had a biological age, 10 years older, and they’re tired, and they’re in inflammation, and they don’t have energy And you whack on a change like that, you’re not going to respond really well. So the two metrics we want to chase VO2 max, and we want to chase lean body mass or muscle, that we use a biological age score, and that gives everyone a really good metric. Are you five years younger or not? And I get people that are that may look like big bones or you know, German heritage. Just be five years younger. Yeah. And then we’ll have a chat.

Gene Tunny  40:25

So VO two max is the best thing for that interval training, high intensity interval training, right?

Andrew May  40:30

Yeah. Yeah, within a certain range, like you don’t want to go if you’ve been doing nothing, don’t get a 400 metre now. Because you’ll keel over.

Gene Tunny  40:37

Yeah. And what I like about your, your work, Andrew is you you’re a big proponent of people just getting out and walking and going, you know, getting your 10,000 steps a day in, I think that’s really good.

Andrew May  40:48

I love the word pulse. But we’ve got a pulse, train hard, high intensity, that’ll get your VO to max up, yeah. But then you’ve just got to walk. You should eat food, and good food. And Tim can tell you all the details on this, but you also should fast. If you’re a male listening to this, and you’re 40 to 45 plus years age and you’re not fasting, you’re doing yourself a disservice because it will do wonders for taking off fat wonders for lean body mass wonders for your hormones, as well. Which should get hey, like I’m a big proponent of regular sauna. And the right person as well can make sure your heart’s okay, but cold, cold water, and we should stress the body, which should recover the body. So the teaching and Gene it’s taken me a while to realise this. It’s the range go hard, but then down regulate, eat food and then fast. Because what so many people do under stress is we’re in standard linearity. There’s no high, but there’s definitely no low.

Tim Hughes  41:50

And with with that comparison, that’s where energy comes from having that comparison, like you know, when you’re talking about being on that level, and it just flat, nothing happens. But when you down, regulate and recover and all those things. So more and more, I can see that. It’s what people bring the energy that people bring to work or to relationships or to whatever they do. It’s all about energy. And what you’re describing there is perfectly describing energy management.

Andrew May  42:17

You know, this from your training, but the energy exchange is carbohydrate plus oxygen. Yep. Which gets water and carbon dioxide. So C6H12O6 plus O2 leads to Co2 plus H2O

Tim Hughes  42:29

I wouldn’t, I wouldn’t quite have recalled it like that. But

Andrew May  42:33

but there’s physical energy. And that’s just your body’s fundamental basic. And if you don’t work with that, from a physical point of view, every other energy source is going to be interrupted. And then you’ve got the psychological and emotional. And it’s all interrelated,

Gene Tunny  42:49

right? Love it. Andrew, we’re coming to the end of the time. So just want to ask, what coaching do you offer? And how can people get in touch with you?

Andrew May  42:59

I coach the high end. So executive coaching. And I don’t have a lot of vacancies on

Gene Tunny  43:11

online as well, yeah,

Andrew May  43:13

I allocate half a day a week to coaching and there’s a couple other, we’ve got to start soon. And then why I do half a day because I love coaching. But I do a lot of other things as well. So I’ll just try and keep it to half a day. But we are launching a group coaching programme as well, which is calledpperformance intelligence Mastermind. So that’s going to be a 12 month programme with a quarterly focus. So q1 is all about getting that fit. q2 is about working smarter, and being productive. q3 is around mental skills. And then q4 is around habit stacking. Yeah, so if anyone wants to find out about that, they can go to my website, And you’ll be able to find the details there. And I’m looking forward to that. It’s taking a lot of what I’ve learned and getting some other people in my business to really try and scale. So that’s a nice challenge we’ve got is to take the message out to a larger group. And I see a lot of the Americans, especially doing masterminds. And I’ve thought for a while. I’ve got to do that. And I’m doing a couple of our family business forums using this format, and it’s have you done group coaching, like that Tim it’s amazed me mate the results. And in fact, as good similar results as you get one on one.

Tim Hughes  44:24

Yeah. Now I’d like to talk more about that. I mean, I know you’ve got so much good stuff I’ve seen with MatchFit, which is an excellent book that I recommend people get in and get a copy. And you’ve also got an eight week programme with MatchFit as well that people can sign up to so that’s for anybody Maysie is that right individuals, whether you’re executive or not.

Andrew May  44:46

Yeah, MatchFit is one of those absolute basics to get physical fitness and psychological fitness. And so that metric now the Live Live Score is aligned to that. So your biological age and making sure you have that psychological flexibility. So yeah, the MatchFit book is a good start for people as well, that’s, it’s 30 bucks a bargain, it’s a lot cheaper than the coaching programme,

Tim Hughes  45:05

It’s a bargain. But I have to say like, it’s the basics where people often slip up, you know, like, it’s, there’s so much good information out there, there’s so much it can be overwhelming with the amount of information that’s there. And quite often I think it can distract people from getting the basics right. You know, you get those, those simple things, right. You know, how you eat, how you move, how you sleep, and how you connect all the things you talk about. So that MatchFit programme, the eight week one, I think, is very accessible for anybody. But yeah, hopefully, if anyone’s out there listening and you, you want to get in contact with Andrew, for some executive coaching, you’re gonna have to be quick by the sound of it.

Andrew May  45:45

Or just jump into the mastermind. Yeah,

Gene Tunny  45:46

put the link in the show notes to your website and your podcast. Andrew, Andrew, May, thanks so much for your time. We’ve really enjoyed it and appreciate your insights. Thanks so much.

Andrew May  45:56

Yeah you’ve asked some good questions. So you had me dancing a bit. So I appreciate those as well.

Tim Hughes  46:01

Thanks Maysie really appreciate it good to connect again.

Andrew May

Yeah ditto

Gene Tunny  46:11

Okay, Tim, good to be catching up with you again, after our conversation with Andrew May.

Tim Hughes

Yeah, that was really good. I really enjoyed it.

Gene Tunny

Yep. Thanks for setting that up. I thought that was that was terrific. He had a lot of really good things to say. I thought,

Tim Hughes  46:27

yeah, I mean, he’s at the top of his game with the position he’s in have an understanding you know he talks about the link between physical and psychological well being and executive performance and elite performance for athletes, and he has a CV that is beyond compare, I think, certainly in Australia. So what he brings to that whole conversation, all those different aspects about what we as humans go through with our needs, and what affects performance and our health. He’s in such a good position to be able to comment and coach on all of that.

Gene Tunny  47:04

Yeah, absolutely. What were the main takeaways for you, Tim?

Tim Hughes  47:07

Many, and it was great, because I hadn’t been in touch with Maisie for a while. So it was great to reconnect. And I’ve followed his podcast for the last year or two. And he talked about his, those five elements that he used in his coaching. So I’ve made a couple of notes here. So we’ve got the operating rhythm for the first one, getting the work and the year in balance. And he talked about that in terms of well as like we do with schools, and they have their terms and, and sort of following that. And that made a lot of sense. I think breaking it down into different chunks. And everyone can relate to that of you know, because that that feeds into, you know, some of the other things that he talked about, where you’re not necessarily going at the same pace all the time. So there’s a light at the end of the tunnel, energy balance, he talked about putting a plug in the bath. So yeah, stopping draining energy first. So instead of just looking to see where you can boost it, the first step was to stop draining energy. And again, everyone can relate to it, you know, you can sort of see it, and sometimes you need it pointing out to all of us, I think can benefit from having someone to we get into the rut and the habits of doing things which are probably not to our advantage.

Gene Tunny  48:22

Over indulging, drinking too much alcohol is no good for your performance. Yeah, yeah. staying out late. So yeah, I think that’s that’s a good point. You want to stop the things that are draining your energy? Or it could be a bad relationship?

Tim Hughes  48:37

People? Yeah, absolutely. You know, and work practices, you know, so many different things. And I think it is that thing of, you know, sometimes I mean, we do it ourselves, you know, a lot of us, I’m sure self correct, you know, we sort of put your head above the parapet every now and then and see things a little bit more clearly. And then before you know it, your head down, bum up, just getting on with the work at hand. And so you need those sorts of times above the parapet to sort of get a clearer view of the direction of everything. And, you know, like I said, we do it ourselves, we self coach, but you can see where somebody else can have that clarity, and help us towards getting these operating rhythms and energy balances, right? He talked about downregulation. It feeds in Psychological detachment and parasympathetic activation.

Gene Tunny  49:24

Yeah, yeah. I had to ask him what parasympathetic meant? Yeah, that’s part of the downregulation, isn’t it?

Tim Hughes  49:33

It is, I mean, like, it’s these natural sort of balances that we have, you know, where we are responses a largely, you know, we have so many primal responses where, you know, stress levels can hit the roof and all of these different things that gets talked about a lot, you know, and in our history, we would have had life threatening situations that we would have come across where all those stress hormones and the cortisol and adrenaline all those fight or flight responses had their place. But we get that in front of a computer nowadays. So the responses through the body, the hormonal responses are still there. And the stress we feel and the stress the body takes on, and the ill effects of that are far greater than, you know, a simple sprint, simple sprint from a tiger or whatever. But you know, it’s not as life threatening as it is. And so getting those responses in place, and being able to recognise or manage those stress responses to a healthier level, you know, because we need stress a certain amount of it, but we don’t, we don’t want to say that heightened levels. Yeah,

Gene Tunny  50:36

I thought that was interesting for the executives. So what I was trying to get out of Maisie is how do executives apply this and it’s not as if he’s telling the executives, you got to chill out right now, or you’re maybe I don’t know, exact language he uses, but it’s not as if he’s saying that, okay, this, you know, intense workload you’ve got, you should take it a bit easier. He does recognise that CEOs to get that high performance, there is a period in which they do have to push themselves, but he’s saying you got to make sure that’s balanced out later on somehow. Yeah. And it could be, you’ve got to look forward to a break in the future or, you know, a few years. Because saying, at that level, if you’re going to perform at that level, you can only do it for a few years or not for an extended period. And then you’ve got to be thinking about when when you do get a break, or when you do something, when you do you’ve got to look forward to that time when you can down regulate. So although that was good, yeah.

Tim Hughes  51:36

It’s that thing of like, you can’t sprint constantly. And if you do, then there’s, there’s a payoff for that, you know, there’s a debt to pay. Yeah, yeah. So it is that thing of like not none of us are bottomless pits that we have to manage our energy and our time well, and, yeah, one of the other things, number four, on his list of five was mental skills. We didn’t go into too much detail, but I guess it was covered with the general conversation, you know, he’s talking about resilience and the things that we can put in place, the sort of, you know, the things that we can control, and, you know, being able to, I guess, put all of this into practice, you know, because to, to be able to apply all of these different areas, you need to have the mental capacity to be able to keep it in your day and to, to make it work to make sure that you give it priority.

Gene Tunny  52:27

So that journaling and meditation was that what was that under mental skills

Tim Hughes  52:32

didn’t go into that in detail, it would be I would say, yeah, that’s part of the tool box to increase your mental skills.

Gene Tunny  52:39

That might be downregulation, too.

Tim Hughes  52:42

I think this is where they cross over we’ll have to get Maisie on for another chat. But it but it’s that thing of absolutely. You know, you can imagine, to be able to keep it all going to be able to get your head around everything that you need to do well. And resilience is definitely a big part of that. Yeah. And the fifth one was wearable tech. And this is a fascinating area, because this is changing very quickly. In some levels, it’s gone beyond the basic pedometer that the first wearable techs really were. I know, I listened to something from Will Ahmed the other day, he was the guy who started Whoop, yeah, he talks in terms of this wearable tech being version one was really the pedometer, version two is where it’s at now, version three and four, like, the more data that it can give us, and this is what Maysie was talking about was like, you know, getting data KPIs using, using this information, this technology for our good. So it’s not just smothering ourselves in more detail, it’s actually using something that can be relied upon to be able to further what we’re doing or to see that we’re on the right track. And also to show that we need to downregulate this as part of where the current version of wearable tech is, it’ll tell you when to That’s enough where you need to slow down.

Gene Tunny  53:57

So I mean, ultimately, what are we heading towards? We have all of these monitors in our bodies or nanobots or whatever, and they connect to the device, neural link and it connects to our mind and will be able to tell us about our how we’re feeling how our brain activities going, what parts of the brain are firing, how emotional we are that day, that’s

Tim Hughes  54:17

you’ll have a direct line to Elon, you’ll be able to speak to any point, I think,

Gene Tunny  54:22

just on Elon because I mean, one thing it’d be good to talk about is what you took out of it in terms of firm performance because this is an economic show. So I know like this episode, we’ve gone a bit into health and fitness. We’re not really a health and fitness podcast or economics podcast, and that’s the angle I was interested in. And I guess what I found fascinating from talking to Andrew is just the dedication that some of these CEOs have or just how much they’re optimising. Right. I guess it makes sense given they’re running, you know, billion dollar companies or companies with hundreds of billions of dollars. In some cases, it makes sense that they’re doing this. But yet, I was fascinated by Andrew describing the extent to which they’re trying to optimise all these things. And you know, seeing someone like Andrew and in what he knows and what I think he’s talking to them about, which is the stuff you were going on about those five things. It’s really Yeah, you think, yeah, that’s how these guys and girls stay at the top of their game, and they can perform at that high level. Now, the next thing I want to know is to what extent that go turns into firm performance. And the evidence on that is a bit, you know, it’s early days, it’s not that clear, I found one study, it was a University of Cologne working paper. So German working paper, and they looked at whether the physical fitness of CEOs is relevant to firm value, and they looked at whether CEOs completed a marathon, how many marathons or I think was marathons, maybe half marathons they they finished in that year, and whether that can be related to firm performance. And they they found that it had a positive impact. But look, it’s one study, it’s a working paper doesn’t look like it’s been published or peer reviewed. But my conclusion based on looking at the what’s out there is there’s still not a lot of evidence or data on this. I mean, it’s, it’s clearly good for you as an individual, but does it translate into into firm performance? And is this something that the Board should be monitoring? Should they be telling the CEO? Look, we need you to work with someone like Maisie? I think that’s an important question that you asked that question, didn’t you

Tim Hughes  56:31

it’s along those lines. I mean, because it was about ROI. Yeah. And it’s one of the things is because this has already been, Maysie has been looking into that, anyway. But it’s the hardest thing with it is to get good data pre. So it was something we’ve been looking into for a while I know. And so this might be a good opportunity to mention, if any of the listeners out there have a business that they’re interested in doing a study on. Because the most accurate way, or one of the most accurate ways is if we can get data before intervention. And then data after so at least we’re working with the same test group.

Gene Tunny  57:07

Yeah, and you want a treatment and a control group. So you have to ideally, you’d randomise it in some way who goes into the treatment and who stays in the control?

Tim Hughes  57:16

And so those sorts of things. No, so we’re, we’d be really interested in running those experiments, if you like. But at the end of the day, it’s about what makes a difference. And I think it would be fairly safe to say that there’s going to be a positive impact. I mean, that then that’s just from evidence I’ve seen in the work I’ve done. Andrew May, will be able to talk to you about evidence he’s seen. But it’s difficult to put it down on paper as being like really, as an ROI. That’s something for the accountants to be able to say, okay, yeah,

Gene Tunny  57:48

I think it’d be, it’d be difficult to actually identify it. In terms of firm value, particularly given there’s so much else going on that affects our particular businesses going, it’s gonna be really hard to just tease out the impact of, you know, health healthier CEO, but I can see the mechanism. I mean, if someone’s healthier, and Andrew was right there, there’s good evidence or good evidence from what’s the literature, physiology or whatever the whatever the discipline is, is medicine, there’s good evidence that better health if you’re physically fit, or that the healthier you are, that translates to your mental well being, and your your emotional well being. So there’s definitely a link there. And I can see that would lead you to make better decisions. Because when you make poor decisions, when your judgment’s impaired, it’s when you’re not sleeping properly. That’s when you’re a bit rundown. And that’s in the workplace. I know, that is when you make poor decisions, and part of getting back on track, if you’re ever in that sort of that slump. If you ever have a rough patch at work, part of it is actually improving your health and fitness. So I know that from personal experience.

Tim Hughes  59:02

Absolutely. I mean, we’re all human at the end of the day. And there is plenty of good evidence to support the positive impacts of exercise of eating well, of getting enough sleep. All these basics that are really within reach for most people is really more of a daily practice that needs to be implemented. And it’s available for all of us. There’s nothing really super tricky with a lot of this.

Gene Tunny  59:26

Yeah. And they reinforce each other, don’t they? So if you exercise, the more you exercise, the more you move that helps you sleep. It also encourages you to eat better as well doesn’t you

Tim Hughes  59:37

I think sleep’s foundation of the whole thing because if you get a good night’s sleep, you can do all the other things well, but is that thing about just keeping on track with a simple daily practice? Something I’m fascinated with and doing more work on with the work I do. It is it’s the benefits are really well documented for what that is, and if anyone’s concerned about, not concerned but interested in seeing what impacts it have. Try it, you know, because we’re all test group of one. And you can see yourself, you know what sort of difference it makes. And then you can correlate what that might mean to a business or a CEO. And it can only be positive you would imagine.

Gene Tunny  1:00:16

Oh, mate, yeah, it’s obviously it’s been working out for you. I mean, you got the high praise from Maysie at the start of the conversation. So he was impressed by.

Tim Hughes  1:00:27

He’s a very kind man. Might need to check his eyesight.

Gene Tunny  1:00:32

I think that’s great. Any final thoughts before we wrap up this wrap up?

Tim Hughes  1:00:37

Now? I really enjoyed it. And it is an area that I’m a part of that. So I was I was really looking forward to that chat. And I got a lot from it. Yeah. Looking forward to round two, I think they’ll be a round two at some point in the not too distant future.

Gene Tunny  1:00:51

Yeah, I think I’d like to look more at that evidence and just do a wider review of what’s out there. And what might be underway. What was he think this this should be an active area of research? I would say? Because it’s such a it’s such a fascinating question. And, and I think people in management, people in economics should be interested in it, because it looks like an intervention that could be highly cost effective. If you can get a coach for your CEO and have them performing at a higher level. And they can make better decisions, provide better leadership. And that could have a big impact on bottom line, potentially. So I can see the mechanism. Just, I just like to see some data. And yeah, I think it’d be difficult to tease it out. But I think the links there the mechanism, the mechanism is is established. Just need to see some data and figure out a clever way to demonstrate that link.

Tim Hughes  1:01:49

If you were a shareholder. What would you think if you could see the CEO or the executive team were into their health and valued their health? How would that

Gene Tunny  1:02:00

makes you feel better? I think and I think if you look at the current vintage of CEOs, say of the banks look at someone like Matt Comyn, who Andrew works with fit Yeah, young guy, well, Gen X guy. He might be my age, or just maybe just a bit older or younger, younger actually might be younger, actually. Yeah. And there’s also Shane Elliot, ANZ. I’ve worked with ANZ. I mean Shane’s superfit, right, he’s in good condition. So I think they are and I think a lot of them are and they’re probably healthier than the, the generation before them. And certainly the generation before that. I mean, there’s that generation who were born before the war, or born in the early part of the 20th century, who dropping dead at 50 in their 50s and 60s because of overindulgence.

Tim Hughes  1:02:49

So the Don Draper effect.

Gene Tunny  1:02:52

Yeah yeah I mean, you’re there’s quite a bit of that. So yeah, I think the modern CEO, they’re probably healthier. And yeah, there’s evidence from Sweden, this is one of the studies I’ve found, that I’ll link to in the show notes. If I remember correctly, it looks like the the CEOs are actually are actually healthier than the people working below them. Right. So there are a lot of fit CEOs out there. And they can be healthier than the Yeah, the CEOs are often healthier than other individuals of their cohort and gender. They also suffer less from mental diseases. And, and better make sure I’ll, I’ll check exactly what that is and put it in the show notes. Yeah, but that’s what I found interesting about that Swedish study, it looks like the CEOs are reasonably healthy to begin with. And then Andrews work is about getting them up to a higher level.

Tim Hughes  1:03:45

Yeah, I mean, I think the correlation with people’s own capacity for discipline probably plays quite a bit, in that. There’s certainly discipline in being healthy and staying healthy and doing the things that need to be done. And so I guess there’s a certain amount of discipline, although there’s many stories out there, I’m sure. But for someone to be a CEO, it’s a fairly, you’ve got to play yourself pretty well for a long period of time. So it should go hand in hand that the people who managed to get to the top of the executive pyramid would also be people who would perform well. And in health.

Gene Tunny  1:04:23

Absolutely. Okay. Tim, I think that’s a good place to end. Thanks so much for setting up that conversation with Andrew. And, yeah, we’ll catch up again soon. And hopefully, with Andrew sometime in the future.

Tim Hughes  1:04:37

Yeah. And in the meantime, if anyone out there is interested in doing a study, reach out to us, let us know.

Gene Tunny  1:04:43

If you wish to be experimented upon, let us know. Okay. All right. Thanks. Thanks,

Righto thanks for listening to this episode of Economics Explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. If you can send me an email via Or a voicemail via SpeakPipe, you can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if you’re podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


Thank you for listening. We hope you enjoyed the episode. For more content like this or to begin your own podcasting journey. Head on over to


Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business

Full transcripts are available a few days after the episode is first published at Economics Explored is available via Apple PodcastsGoogle Podcast, and other podcasting platforms.

Podcast episode

How performance-based pay can motivate employees, but there are risks – EP177

Can we get people to work harder and perform better if we make their pay performance-related – e.g. with performance bonuses or commissions? Does this work? What does the evidence say? We know that people respond to incentives, but, as Gene Tunny and Tim Hughes discuss this episode, getting those incentives right can be tricky. 

Please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

What’s covered in EP177

  • What is performance-related pay? [0:41]
  • The types of jobs in which performance-based pay works and doesn’t – e.g. fast food vs real estate [8:09]
  • The importance of getting incentives right and having transparency [23:16]
  • Performance-related pay is a difficult thing to put into practice [28:24]
  • Group-based incentive schemes – evidence from a recent European study of the Hydrema manufacturing business [52:54]

Links relevant to the conversation

IZA World of Labor – Performance-related pay and productivity 

How group-based incentives increase worker performance | CEPR

Does Group-Based Incentive Pay Lead To Higher Productivity? Evidence from a Complex and Interdependent Industrial Production Process 

The Use of Reward and Incentive Systems: A Case Study of McDonald’s – ToughNickel 

McDonald’s Restaurants puts motivation and reward at heart of business strategy – Employee Benefits 

Give and Take – Adam Grant

Performance-related pay | The Economist   

Real Estate Agent Commissions: How Does it Work and How Much Should You Be Paying 

Learn the Truth About Real Estate Commissions | PropertyNow

Transcript: How performance-based pay can motivate employees, but there are risks – EP177

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:06

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host Gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. In this episode, Tim Hughes and I chat about performance related pay, can we get people to work harder and perform better if we make part of their pay performance related? Of course, if you don’t perform at work, you can get sacked. So your pay does end up being related to performance in one sense. But what we’re talking about here are such things as performance bonuses and commissions. That is where you don’t just get a regular predictable salary, but part of your compensation is at risk. Does this work? What does the evidence say? We know that people respond to incentives. But as Tim and I discuss this episode, getting those incentives right can be tricky. Okay, let’s get into the episode. Please stick around to the end for some additional thoughts for me. Tim Huges, good to be chatting with you again

Tim Hughes  01:30

Gene, good to be here.

Gene Tunny  01:31

Excellent Tim, I thought it’d be good for us to have a quick conversation on performance related pay. I’ve been thinking about this following on from this whole debate between Steven Crowder and the daily wire, which I talked about with John Humphries on his Australian taxpayers Alliance Econ Chat, earlier in the week, and I thought it’d be good for us to have a chat about a related issue, which is performance related pay I got starting to think about this. Well, when John and I were talking, we were talking about well, does the actual form of the contract matter? Or is it just all about the dollars that are being paid? Or that they expect to earn out of the contract? I mean, obviously, the money is important, but how do the contractual terms affect the amount of effort that you put in, in your work? And so I was thinking about that in the context of the debate between Crowder and daily wire, and then it reminded me that I should cover this issue of performance related pay on the programme, because I think it’s an important, an important issue.

Tim Hughes  02:36

Yeah, sure. It’s an interesting area for sure. 

Gene Tunny  02:38

Yeah. I mean, did you have any thoughts on that whole crowder and daily wire?

Tim Hughes  02:41

I’d never heard of it until you mentioned it. So I didn’t even know if, so he’s a comedian, that guy?

Gene Tunny  02:47

Yeah. Yeah. So he’s on the right wing in the US. He’s more of the Magga type, Crowder, whereas the daily wire and more of the traditional Republican, and I think Ben Shapiro was originally anti Trump. So yeah, the different parts of the conservative movement in the States. 

Tim Hughes  03:09

I think I know now, I haven’t heard of him. But as we often talk about like, it’s it’s good to be exposed to different areas and different views. So yeah, looking forward to hearing about it.

Gene Tunny  03:23

It’s just all over YouTube and social media, people are commenting on it and say, John went through it. And John’s view is that well, all they’re arguing over is the amount of money involved. And it’s not necessarily about, you know, the concern Crowder had was that daily wires just doing the bidding of big tech.

Tim Hughes  03:42

But so what was what’s the what’s the juice? Like? What was the story? Between those two guys? It was a it was a contract. Yeah.

Gene Tunny  03:49

It was a contractual dispute. Well, they were trying to recruit, Crowder to their platform, and they offered him $50 million over four years, but the payment that they have for you, yeah, but what they would pay would step down if he was demonetized on different platforms like YouTube and Okay, Twitter, or Facebook, or whatever. And he was saying, well, you’re doing the bidding of big tech. But look, it costs the money. So it makes sense to, to scale the contract down. And so in John’s saying, look, it’s just all about money. These contractual negotiations are just all about money, ultimately.

Tim Hughes  04:26

Just out of interest. So when he says you’re doing the bidding of big tech, what does it mean by bidding? Like, I can understand that, like big tech may affect that income? So if it’s monetized that’s basically the issue. Yeah. But how can they be doing the bidding of big tech? I don’t understand that.

Gene Tunny  04:43

Well, maybe I haven’t expressed that very well. But the idea is that, well, a lot of these conservatives think that big tech is trying to censor conservative voices. Yeah. And so he’s saying, well, you’re just going along with what they want. Alright, okay. I’m accepting that in the pocket. Yeah, no. Yeah, maybe that’s I don’t know. That was his concern. But look, as John said, it just all comes down to money and at what price you’re willing to, to work for Daily Wire and also to give up the IP because he would have to give up IP and the shows that are produced while he was at. At Daily Wire, they would get the copyright in that. Yeah. So yeah, ultimately, it all came down to money, but it did get me thinking well, okay, well, how would you structure a contract? To get the best performance out of a person was daily while we’re designing the contract, they were proposing a contract in a certain form to get the best outcome from their point of view. And then also, as possibly was from Crowder’s point of view, too, because there’s going to be more money available for both if he’s not demonetize, right, yeah. Yeah. I mean, he may think that, well, that’s bad for his brand. Or maybe he’s playing the longer term game. And he’s thinking well, yeah, I mean, I’m all about being edgy. I don’t care about whether I’m monetized on YouTube or not. But then again, he should have appreciated that if he wasn’t monetized on YouTube, then that’s less money overall. So the Daily Wire is trying to design a contract, where it’s essentially trying to encourage him to be monetized or as monetized as much as possible so that there’s more money for them. Now Share, They Share part of that with Crowder, and depending on what the share of the total revenue that YouTube was of the total revenue that comes in from Crowder, he may well have been better off with the deal they were offering, because he was I think they’re only going to dock 25%. Well, they’re going to dock 25% If he gets demonetized on YouTube, okay, I thought this was an interesting case. And it just got me thinking about incentives and how do you structure contracts.

Tim Hughes  06:56

yeah, yeah, it’s an interesting area, because I know we talked a little bit about this. And certainly, from my experience, like, you know, if you’ve got an incentive, as an employee, or if you can give incentives as an employer to get the mix, right is the tricky thing, because you know, you want something that’s attainable, and sustainable. So if it’s too easy to get the reward, you know, the employer can lose out. If it’s too hard, then the employee loses out. So it’s a bit of a fine balance. And obviously, this is used pretty successfully with commission based work, you know, where there’s a base salary plus commission, and they’re usually done over a period of time, so they can get that amount, you know, pretty much right? And some people can do really well with that. Particularly in real estate. Yeah, well, and with salesmen, it’s a big one for sales, of course, of all sorts of industries where no sales are used. And it makes a lot of sense, you know, if you’re a really good salesperson, then you can be rewarded for that. And if you’re not so good, then, you know, you, you don’t get so much. And so sort of a fair way of doing it. So I think now, wherever possible, it makes a lot of sense to have that involvement in the company. You know, that’s, that’s properly rewarded.

Gene Tunny  08:09

Yeah, exactly. So I thought this would be a good topic to, to talk about. So in the great majority of employment agreements, I would think would not involve any performance related pay that there’s really isn’t any incentive there. But they rely upon, well, the incentive is if you do the job, then you’ll keep your job. But if you don’t, we’ll get rid of you. So I guess that’s the that’s how it works, right? And but if you can monitor how people are working, and you’ve got a good, a good eye on that you can, you’re able to properly understand the contribution output and the profitability of the firm. And in many cases, I suppose you can, you can do that. If someone’s working at McDonald’s, they’ve got a sense of whether that person is able to prepare the number of Big Macs an hour that’s required or whatever they need to do. So you can monitor that sort of activity. And in those cases, there’s no real need to provide any incentive, if they do a better job, or if they suppose they will have to meet a particular level of service or or do so much an hour. And if they do more than that, well, it doesn’t really lead to more money or more profitability for McDonald’s because basically, McDonald’s ends up serving everyone who comes in and tries to buy something off them anyway, doesn’t it?

Tim Hughes  09:39

I mean, that I know people who’ve worked in McDonald’s and they seem to have obviously it’s all about systems have completely been the leader in that kind of business for a long time. Many people, many businesses have incorporated, that whole framework of heavily systemized but of course, it means that the expectations of what needs to be done? Pretty accurate, but I think they do have, you know, opportunities to sort of move within McDonald’s. So the scale or the pay scales quite clearly set out.

Gene Tunny  10:12

You’re right. And just after I gave McDonald’s as an example, I thought I better check that McDonald’s doesn’t actually have performance related pay. Because that was just the first thing that occurred to me. But I think most of the people are working there, they’re just going to be getting paid the award rate or whatever it is, or whatever. Yeah, the agreement. But it turns out, it looks like there is some performance related pay. This is in the UK, McDonald’s restaurants put motivation and reward at heart of business strategy. So I’ll put a link to this. This is for the the top restaurants and it looks like they give a bit of a bonus a small bonus in some cases. So each month, all employees in the top 10% of restaurants based on mystery shopper scores receive a bonus of 50 P for each hour, they have worked in a two week period. Okay, so that seems that seems okay. But it’s not related to your individual performance. It’s related to how the whole store goes. And that’s probably not as strong an incentive as if it’s an individual performance pay performance related pay measure?

Tim Hughes  11:26

Yeah, and I guess put put a big part of that, because they work as teams, obviously. So to pick out an individual for having particular performance would be hard, but collectively, for that branch, you know, there might be incentives, if not, with McDonald’s with other similar kind of fast food chains. But I know, for instance, in the states, if you work in hospitality, a lot of the jobs are paid, not very much on the understanding that they’re going to receive, you know, pretty good amount of tips throughout the week. Yeah, because it’s customary and traditional to do it in most places. As I understand over there, I worked in Austria, myself in ski resorts years ago. And that was a big thing. There was you lived on your tips, it was fantastic. You know, it made a big difference. And you could save your wages, which weren’t high, because of it. Whereas in the UK, it was less likely you’re gonna get tipped, you know, you’re gonna be hungry. If you’re, if you’re working in hospitality in most places in the UK, and probably in Australia, too, to be fair. It’s not as customary here, either. So.

Gene Tunny  12:30

That is because we have high award wages, or well, maybe not high. If you’re, if you’re working in these jobs, you probably don’t think they’re that high. But yeah, relative to what you get paid elsewhere in the world, we’re doing the same job. It’s quite, it’s a bit higher than that. Yeah.

Tim Hughes  12:44

I mean, yeah, you get to the high end of that kind of scale, you get the concierge is at top hotels around the world. And who knows how much those guys make and women, of course, like in those roles of being in really flush hotels, where a lot of people have a lot of money and just dropping $100 bills everywhere.

Gene Tunny  13:04

Yeah, exactly. And I’ll put a link in the show notes to some of these articles I found on McDonald’s. So just put some clarity around exactly what they’re doing. That was just the first company that occurred to me, but my contention would be, and I think the evidence shows this as the majority of jobs out there. There’s no real performance related pay. Say, if you’re in the public service, generally not. Some public service agencies will offer bonuses, there’ll be some there’ll be some assessment of how you’ve gone through the year, and maybe they’ll pay you a little bit of a bonus. So a lot of that’s, I think that’s rare in the public. Yeah.

Tim Hughes  13:48

I would imagine it’s industry specific. So they’re probably like situations like that with? Well, certainly with government employees, where it will probably be difficult to put any of those kinds of things in place. Maybe not with all departments, but certainly with most we were talking earlier about it clearly is more suited to certain industries and others. And one of the interesting areas at the moment, because there’s a lot of people doing side hustles side gigs, doing their own kind of little business, while they’re still working for, you know, an employer. So their main employment is earning X amount of money every week, but putting time and energy into their own little gig, which is a tricky one, because like, you know, again, depending on what the work is, but if it’s not easily quantifiable, people can be putting less energy and time into their main job. So it’s a problem for the employer, where it’s like, clearly people aren’t getting satisfied from their roles or the work that they’re doing in that main job. And something that we both heard Phil Dibella talking about fairly recently was being an intrapreneur like so. Basically an entrepreneurial spirit within a company so you can be an intrapreneur and what you might be able to offer to that company. So, if a company is open to different sorts of ideas and innovations from within the company, then there might be a space and place for someone to grow within that company. Yeah. And and share their ideas and use that energy within within the business.

Gene Tunny  15:19

Yes, certainly. So if you can demonstrate that you’re, you are making a material impact on the profitability of the firm beyond your normal job, or what you’re doing at the moment and your job or what your role is, and you’ll make your contributions much greater than what you’re getting paid for, then that’s an opportunity to redefine your role to get a better better pay from your boss. And you can be this is what Seth Godin calls the linchpin be indispensable in the business you are and you can be a linchpin in your own business, but you can also be a linchpin in someone else’s. Yeah.

Tim Hughes  15:55

And of course, that that comes down to a symbiosis where obviously, the manager or your superior needs to be receptive to that. I mean, they need to be good ideas, of course, but if it’s a receptive environment that encourages that, they would need that to work. So there’s a few things obviously that have to come together. And again, that would be industry specific. And, you know, within guidelines or, you know, whatever, I think forward thinking companies can certainly take advantage of that, you know, with the event of encouraging intrapreneurship within their own company.

Gene Tunny  16:30

Yeah, exactly. So with, let’s think about the economics of, of all of this. So we’ve identified that there’s performance related pay in more sales and, and in real estate and in in other sales jobs. And that’s because it’s a way of compensating the top salespeople, and it motivates them, it motivates them to hustle or to work harder to make more phone calls or to aggressively go after properties to sell. I mean, what’s going on there? I mean, why is real estate different from, say, working behind the counter at office works or something?

Tim Hughes  17:10

I guess, with real estate, you make a significant sale less often. Whereas like with most retail, it’s going to be a less significant sale? pretty often. Real estate is a bit of an outlier, I think, isn’t it? Because depends where it is. And like, you know, it might be a handful of sales for some people who can do extremely well. Yeah. But you know, that it comes down to, yeah, just very few sales that are really significant. And, of course, are a big, dry periods. There’s not much happening in real estate. So it’s a very, up and down kind of market.

Gene Tunny  17:44

Yeah. So it’s obviously because or, or this, this is what I’m thinking is because this is so competitive, and there are big gains to the people who win, but the people who make the actual sale happen. There are big gains to to that company because of the commission that’s involved. And that’s shared with the agent, isn’t it? And that’s because it can’t just always observe what the agents doing because they’re often out and about, and it’s a job where they may have to work more than the usual hours, they often have to work after hours. There’s a lot of hustling involved, though, to get the sale. They might have to really go above and beyond and sharing the commission or having commission based pay. That’s a way of incentivizing them.

Tim Hughes  18:38

Glengarry Glen Ross Yeah. Like coffee’s for closers is the same. Is that same thing? Like, I can only imagine. I mean, I haven’t worked in that area at all. But I can only imagine it’s, well, pretty stressful. I mean, because if you’re not selling you’re not earning. And there’s a lot of jobs like that where its base salaries is either non existent, or it’s just minimal. So you really, the incentive is you have to you have to sell. Yeah, with real estate, it’s feast or famine, it would appear.

Gene Tunny  19:06

Yeah, I have to look more into that just exactly how they compensated. So if you’re a real if you’re an agent working at the Ray White, you’d be getting as a base salary, wouldn’t you? And then they’d be paid, you’d be getting a bonus or you’d be getting a share the commission that’s charged on the transaction, would you I would imagine, but I can’t say I’m not sure. I don’t know either. But I know I’ve got the sense that it’s related to that because Yeah, real estate is one of those industries where the high fliers the top real estate agents are just yeah, they’re they’re making a lot of money. Yeah, they appear to be making a lot of money. I know that having the BMW that’s part of the act out of the bottle. Yeah.

Tim Hughes  19:52

It’s definitely a regional thing as well. Like, depending on where you were, you’re an agent. You know, obviously the the margins are bigger in the The more expensive suburbs more competitive I imagined to. Yeah. But is that is that thing like sales is definitely the most common way of having incentives. And it makes sense from all sides and employers and employees, there’s a margin that can be shared. And it makes sense. If you haven’t made that sale, then the margin is not there. So it’s probably the most common one, and the fairest one too.

Gene Tunny  20:29

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  20:34

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you Frank and fearless economic analysis and advice, we can help you with funding submissions, cost benefit analysis, studies, and economic modelling of all sorts. Our head office is in Brisbane, Australia, but we work all over the world, you can get in touch via our website, We’d love to hear from you.

Gene Tunny  21:04

Now back to the show. The places where I’ve seen performance related pay is in consulting. So consulting firms often have a bonus scheme run bankers in banks, for their investment bankers, they’ll have a bonus scheme, hedge funds, they have bonus schemes for their for their people. And they’ll have their salary, but they’ll also be a bonus on top of that. And the idea is that if you’re a better performer, then you can get a generous bonus. And some of these bonuses can be pretty generous, like some of the bonuses that they’ll have in the City of London or on Wall Street for some of these bankers. I mean, that can be millions, millions of pounds or millions of dollars. Yeah, because a really good year. And if, if that particular banker, or trader, if they’ve done well, or it looks like they’ve performed well, like they’ve done incredibly well in the deals that they’ve signed, or on the trades that they’ve been executed. So there’ll be some link there, and I suppose why the bonuses work there to to incentivize people as well. If you’re working in that sort of industry, you’re probably you may be highly motivated by money to begin with. And so the prospect of more money is going to motivate you to work harder. And there’s also that the inability or the, it’s something where you can’t really closely monitor what they’re doing. And you’ve got to rely upon the person putting in the effort going, they’re going the extra mile, so to speak, to get the best outcome for the business or for the for the bank or for the for the consulting firm. So billing more hours getting projects done more quickly. So you can then get another project in, send the invoices out.

Tim Hughes  22:56

So actually, I mean, to be fair, this is where a lot of problems come though, wasn’t that the foundation of the GFC with mortgages been given for properties that shouldn’t have been mortgaged? And so a lot of a lot of deals been done that shouldn’t have been done on paper were worthless, and then that started the whole GFC process. Isn’t that correct? Like? Yes, yeah, absolutely. Like it was basically. And it was that incentive to yeah, get the Commission’s that was driving those deals, you know, so if, if it’s a bad deal, then yeah.

Gene Tunny  23:30

Yeah. The mortgage originators, who were signing people up. And the story was there all these people who had who were getting loans who had no income, no job, no assets, the ninja loans they called? Yeah, yeah, yeah.

Tim Hughes  23:45

 Yeah. So it’s that thing of like, getting incentives right, is really important and having transparency as well. Yeah. So clearly, there wasn’t enough transparency with that.

Gene Tunny  23:56

Well, I guess the, the incentives weren’t there, they weren’t designed well, from the point of view of the of the company or from society. I mean, they it was all about the short term, it was all about, just sign as many people up as possible, right, as many loans or get as many loans approved. And regardless of who these people are, and so, yeah, it’s people who shouldn’t be getting loans. And then you’ve got the people in the bank. So the investment banks who, then they’re bundling up all of these mortgages, some of which, the people who, who have the loans, they’re going to be the first people to just walk away when things get tough, and they can’t service their mortgage, they just walk away and then this, this was part of the problem. What was happening is that all of these mortgages that weren’t worth as much as nominally they were worth they’ll be packaged up and then sold as a financial product, the mortgage backed securities and you know there were people making money out of that. The the investment bankers who were selling that to pension funds. And yeah, they were doing well in the short term. But it was there from a longer term perspective and for the companies themselves. And for the society, it really wasn’t. It really wasn’t great. Yeah, it’s terrible.

Tim Hughes  25:23

So it can see how it’s important to get all those elements, right. Clearly, there was a lot of people, I’m sure the writing on the wall was visible for a lot of people, but they’re just getting in there and doing it while they can.

Gene Tunny  25:34

Yeah, one point I should make, I think for the companies that fell over. So if you think about Lehman Brothers, and Bear Stearns, certainly what happened, those bad short term incentives did cost them in the long term. But one of the problems with the financial crisis was that some companies that probably acted, you know, that acted pretty sketchy, pretty badly in the lead up to the crisis. Ended up getting bailed out. Yeah, yeah. So and, you know, that’s, that’s a problem.

Tim Hughes  26:07

That’s a different, a different episode as well, I guess there’s a there’s a whole.

Gene Tunny  26:10

Yeah. Too big to fail episode. This is part of the problem. We’ve got that this is what happened during that episode. During that the financial crisis that’s caused a lot of the political problems we’ve had since then, I think, because people see Wall Street getting bailed out. So Bernie Madoff went to jail, but probably a lot of other people who should have gone to jail.

Tim Hughes  26:38

Well, yeah, and it’s, it’s difficult not to be cynical, when you see people getting away with, with things where, in other circumstances, people would be sent to jail. And so yeah, having being accountable and taking responsibility should be across the board for sure.

Gene Tunny  26:57

Yeah, exactly. I was just thinking team with the consulting firm example, because that’s what I know a lot better because I was working for a consulting firm before I went out on my own. Now, I mean, my pay is purely performance based. It’s just, it’s purely performance based. Rather, there’s no salary that doesn’t, there’ll be maybe I do effectively pay myself a salary, but I’ve got to generate, yeah, I’m gonna generate the revenue. Whereas if you’re working for a firm, you can the link between the work you do and the amount of money will the salary you get is indirect. There is a bonus scheme to try to encourage people to work harder. And that certainly does motivate a lot of people in consulting firms. And that can make sense, I think, because when you’re in a consulting firm, there’s a lot of extra effort or a lot of a lot of additional things you could do that it’s hard for the employer to hold you accountable for or monitor how you’re going with those things. I mean, we’re talking about well, how well are you really putting yourself out there to try and bring in new business? Yeah, how well, are you trying to get the deals done that sort of thing? How hard are you really working? How intensively are you working when you’re working on jobs to try and do them as quickly as possible, so you can bill as soon as possible, that sort of thing can be difficult to observe. And so therefore, it can make sense for some performance related pay. And so it can benefit the employer too, because they can pay you a bit less than you expect to earn if you’re a high performer, because you’re counting on the getting a bonus. So from the employers point of view, it’s they like it because okay, it’s some of the risk has been taken by the employee. And if they’re a dud, well, if or if they have a bad year, well, we don’t pay him as much. And then okay, if they make money for us, and you were happy to share some of that profit. It’s a difficult thing to put into practice, though, in consulting firms, I think, because the amount of money in the bonus pool and this is a problem with banking to what can happen is if you could have a really great year, and you could be a star, but if overall the whole firm doesn’t do well. Say the economy has a downturn, the economy, but say you might have had a great year, if you if you’re if your bonus scheme, and I think one of the problems in practice is that many bonus schemes are like this. They’re linked to the last financial year profitability or last quarter profitability. If the firm has a bad quarter or a bad financial year, you’ll suffer even though you’re a star, right? So you’ve really got to be careful how you design these bonus schemes because that sort of thing will cause resentment because the person who thought they did really well that year they’ll be mad because they had a great year, but because the firm didn’t have a great year, they didn’t get as much money. And then the other things that can happen is that if, if you don’t design your performance related pay scheme properly, then you’re gonna have all sorts of disputes between your staff, it doesn’t necessarily encourage a collegiate environment, because you may be trying to maximise your billable hours as a share of the total billable hours on a project. And therefore you might not want to bring someone else in the firm to take part in it because you’d have to share any upside with that person. And attribution. So say someone often, often there’ll be performance related pay linked to whether you’re bringing in projects or bringing in jobs. But then how do you attribute the contribution of bringing in the job? Does the fact that my cousin your consulting business, that he knows the person, he’s got a contact in the energy business and then the person there rings up Mike and says, Oh, Mike, do you know anyone who could help me out on on this job? And Mike goes, Oh, yeah, Janine over there. She could probably do it. She’s got the skill set. And then Janine talks to I didn’t give the guy in the energy business, and I did a berry berry. Berry. And then Barry goes, I’ve got this problem, I need this, this issue analysed. And Janine goes, Oh, yeah, I can do that. I can build this sort of model. And Janine does this really big pitch, she does this really great proposal, which convinces Barry that she’s going to solve his problems. And then Barry goes, Oh, that’s great. I’ll give you this big contract to deliver that. And then she goes, oh, that’s great. And then, and then Mike goes, hang on. I’m the one who introduced you to Barry. Yeah, yeah, I want 50% of that, if any profit on that job.

Tim Hughes  31:53

And Janine did 90% of the work? And yeah, it gets tricky, for sure. And I think this is where it’s industry specific. And also, you don’t want to create an environment where people are jealous, and and sabotaging other people that you don’t design it. Well, that’s exactly. So this is the thing. And I think this is where it gets industry specific. Because and this is also where intrapreneurs can help because you have to come up with your own solution, you have to come up with your best design for the situation that you’re in. There’s not one that sort of suits all.

Gene Tunny  32:25

Well, I think the best thing is, is actually to be generous. And you you win overall, you win the long game by being generous. Yeah, it’s that it’s a win, win and grand he’s got that give and take is that Adam grants thesis, I can’t remember. I’ll put a link in the show notes. But I think you do better in the long run by being generous and not being greedy.

Tim Hughes  32:49

Isn’t it one of Stephen Covey’s Seven Habits of win win? That’s, I think so. So because that’s, that’s basically what it is, isn’t it? Because, yeah, one you want it to be any incentive shall be a positive thing within a team with, you know, for an individual within a team within a department and company. Yeah. And you can have friendly competition and everything. But it’s so easily done, where it can be a negative force, you know, like, yeah, tricky, tricky thing.

Gene Tunny  33:17

And I must admit, I mean, I’d probably, maybe I wasn’t as collegiate as I should have been in jobs where I’ve had a bonus where there was a bonus scheme. And I look back on that and think, Ah, I probably wasn’t always being a team player. And I regret that. But that’s just the way it’s set up. So you got to set up the system so that it does encourage collegiality, and it doesn’t just rely on people doing the right thing out of the goodness of their heart, because when money’s involved, they won’t necessarily do that. It’s a good boy,

Tim Hughes  33:48

it’s a good point, actually, like you can design this around the behaviour that you want to encourage, you know, so if you can imagine that, it might encourage negative behaviour, like, you know, if it’s not a fair system, then you can end up with someone that happy employees.

Gene Tunny  34:04

Yeah, so I’m gonna have to try and dig up some examples of bonus schemes that work because I’ve seen various bonus games, not necessarily, I’m not necessarily making a comment on any organisation I’ve worked in. I’m talking generally about consulting businesses I’ve seen because I’ve known a lot of people who do consulting work, and I’ve heard of various different models. I haven’t heard of one that seems to get everything right. There seems to be issues with all of them. I don’t know how you design it, but you certainly have to have your bonus linked, not just to the short term results, but to the longer term outcomes, they maybe have to have it linked to profitability over several years. Yeah. which avoids the issue of well, what if someone has a great year but the whole company doesn’t do very well? And then they don’t have there’s no money to pay the bonus. And you also want to see whether, okay, maybe this person, you don’t want to pay someone a bonus if they’re actually making things worse in the long run, because they’re because they’re really toxic to work with, like, they might be a high performer, they might be generating a lot of sales or doing a lot of work. But they could be a nasty piece of work. And that’s no good for your company’s morale of other team members for your reputation.

Tim Hughes  35:19

It’s actually interesting, because it would be very hard to imagine a perfect system for any scenario. So I would imagine that any good incentive scheme would be constantly evolving, constantly being receiving feedback and, and changing because of all those reasons that we’ve mentioned, you know, like people who might just be a passenger and thinking I’ll just do as little as possible and, and try and, you know, right off the back of other people’s hard work, if it was a team incentive, you know, so it would have to be a very flexible, mobile kind of incentive system, you would imagine.

Gene Tunny  35:53

Yeah, I might look more into this. What are some examples of schemes that have done? Well, because there’s been, there must be a literature on this. So there must be people must have written about this. But what I’ve done is to prepare for this conversation, as I’ve looked up, or what is generally what does the economic literature tell us about the you know, the effectiveness of performance related pay? And? Well, as you probably expect, given that we do see examples of performance related pay out there, it must work, right? Companies wouldn’t be adopting it if it if it didn’t work in some way. And so there’s a great article on the IZA website. So that’s an institute that looks at labour market issues, I think it’s German. So the Z must mean something, mister, must be some German words, starting with Z. I could be wrong about that. I dont know why its IZA, I don’t know exactly why it’s IZA. But there are a great think tank that looks at labour market issues. There’s a great article by these two Italian academics performance related pay and productivity, I’ll link to it in the show notes. And what they find is, so the pros of performance related pay, linking paid or performance is expected to increase worker motivation, effort and loyalty to the firm, pay incentives, raise job satisfaction, lower absenteeism and turnover rates and have a sizeable effect on company performance. Right. So they’re actually finding that their review of the literature tells them that it’s a positive thing. They’re saying that this is a good point, I think the diffusion of remote work may involve a shift from input to output based compensation schemes such as performance related pay, I think it’s a really clever point. What that saying is that as more people are working from home, we really have to start thinking about performance related pay, because there’s less well, in the old days, I mean, where you had to go into the office, then that was how you were signalling your contribution of the firm, wasn’t it? That was your you were you were visibly in the office or you weren’t there. And then the boss could come and give you the tasks to do. And so I guess, just hourly base pay made more sense in that environment than if people are working at home where we’ll really when, when we’re during COVID. And afterwards, we’ve made this shift to working from home and now the boss isn’t really observing whether you’re turning up for work or not, are they they’re just they just expect you to get a certain amount of work done. Yeah. And to be contactable, generally, I mean, available. So it’s a different sort of thing. And so I guess it would force us to think more about how we could design a performance related pay scheme for jobs where in the past, maybe we didn’t have a performance related pay scheme, even though possibly they were amenable to one or they could have, there could have been a performance related pay scheme. But because of the power of debt, well, the status quo inertia, perhaps we didn’t think about that. It’s an

Tim Hughes  39:03

interesting point. Because in that situation, if it’s task based and say somebody’s working from home, it’s performance based, you’re not getting paid any more necessarily, or that might be part of the deal. But if you can do your work in six hours instead of eight, your bonus is you get two hours to yourself to do something else. So I think it’s really interesting point because I think looking at work to be quantifiable by tasks done and those kinds of things if possible, again, it’s an industry specific kind of thing, then absolutely. If you get the balance, right, where the right amount of work is fair within a certain period of time, then yeah, allows people to do that work well within that timeframe or not.

Gene Tunny  39:47

Yeah, another point they make is that digital technologies may improve performance measurement, thus improving the targeting and performance related pay. So how to think more about that in In professional services, jobs, that’s probably less relevant because you do see, I mean, you’d see the the effectiveness of their work in terms of how well, their their products or whatever they’re doing. They’re, you know, are they completing jobs on time? Is the customer satisfied? I’m not sure exactly what that points getting out there. Maybe I’ll have a closer look at the article. But I suppose if you guess you could really, you could monitor what they’re doing. If you mean, that sounds awful. But if you’re recording their screen, or their time spent on the computer, perhaps I mean, I’d hate to do a job like that if someone was doing that.

Tim Hughes  40:42

Yeah, I guess, if it’s tasks, down to what tests are being done, then you can quantify it that way. But for sure, I mean, to be fair to employers, like there’ll be employees milking, you know, the opportunity to work from home, you know, so it’ll be, it’ll be sort of a bit of give and take from both sides, I imagine as to the benefits of that. And again, industry specific, the creative industries. I know, for instance, I got a good friend who is in architecture, and that kind of industry is very collaborative. And so the value of having people in the same place and the interaction is and that energy is really valuable to that kind of industry, where you lose that when everyone’s working from home. So it does, it does have different impacts for different industries, for sure.

Gene Tunny  41:33

Yeah. So I’ll go over the cons are trying to get through these quickly. The effects of performance related pay schemes differ significantly, according to their design and the types of firms. Okay, so we were talking about before about how like performance related pay is going to make more sense in some circumstances and others in terms of the design, one of the points they make here, in the author’s main message. So they say that individual schemes linked to performance have been shown to be associated with higher firm productivity, while group performance related pay and financial participation generally exhibit smaller effects on performance. Right. Okay. It’s the individual incentive that matters. I mean, that that makes sense. Because if you’re say there’s a group incentive, there’ll be people in the group who are thinking, Well, I mean, I can end up working a lot harder. But if Jack doesn’t pull just doesn’t do work as hard as the others don’t, you know, they really don’t work any harder than I could do all this extra work, and we’re not going to get the prize anyway. So why should I bother? That’s what’s gonna happen, isn’t it?

Tim Hughes  42:42

Every scenario you can imagine will be happening somewhere. So yeah,

Gene Tunny  42:45

yeah. I mean, that’s a, I think that’s the issue, or it’s less likely that you’re the relationship between the performance of the firm, and you’re relying on the other group members to perform. Whereas if your incentive is linked to how you perform, then I think that’s more of an incentive to work harder, because it’s not, you know, it’s not contingent on the others working hard as well.

Tim Hughes  43:14

I hadn’t thought about it before. But the ultimate incentive scheme that works, the fairest is when you’re self employed. And you, you know, whatever work you you do and bring in is, that’s your income. Well, that’s the fairest of all incentive schemes, you know, and anything beyond working for yourself, like with more people just gets trickier and trickier, I guess, you know, like, there’s more things to consider as to how it might be fair. But yeah, if you’re working for yourself self employed, that is the ultimate payment incentive scheme.

Gene Tunny  43:45

Yeah, you kill what you ate. Now you eat what you kill.

Tim Hughes  43:49

Well, to be fair, if you’re gonna eat it, it’s probably gonna die in the process if you haven’t already killed it.


I think that’s what they say. You eat what you kill. Is that it? Yeah, that would make sense. Yeah,

Gene Tunny  44:00

I think so. Yeah, I’ll go with that. I’m pretty sure I’ve heard that it’s some of the consulting firms have worked in.

Tim Hughes  44:06

But it’s fair. And that would be the thing of like, you know, you you get out of it, what you put in and that’s pretty much every case of being self employed, you know, a very fair and reasonable way for for things to unfold.

Gene Tunny  44:19

Yeah, yeah, exactly. Okay. Now, some of the other cons. When pay incentives are real design, the effects can be perverse and counterproductive. And I think we’ve covered that. Yeah, about the problems that can happen. If you have badly designed schemes. People don’t work together. I mean, you could even have some people who are deliberately they could sabotage the work of others to make themselves look better. It’ll be happening, that hoard information. Yeah. 

Tim Hughes  44:49

But that’s where I think the flexibility and you know giving allowing people to contribute towards these schemes, I think would be a good thing. And you can only imagine that that would make for a better scheme if people had a little bit of autonomy or choice in in how they worked.

Gene Tunny  45:08

Yeah. Another couple of good points on the cons when performance is difficult to measure or when employees intrinsic motivation is relevant, performance related pay may generate distorted incentives and have unintended consequences on worker morale. So I think that maybe that’s the case where somebody thinks that, well, I’m actually making a huge contribution to the company, but because of the way that the incentive scheme is structured, and what what it measures, so particularly if you’re in a support role, so say the, it’s the, the bankers or the consultants who are getting the bonuses, but someone who’s in a support role, maybe they’re an executive assistant, and they’re not getting, they’re not getting a bonus, because their output is less the contribution they make to the profitability, the firm’s less recognisable, then maybe they get their morale starts to suffer. I don’t know if it’s exactly what they’re if that’s what they’re driving out there. But I think the point, that point makes sense to me that the other con that they identify is that linking pay to performance may generate excessive stress and be detrimental to long term performance. Now, I guess that’s correct. So this is where you got to get the balance, right? Because if you’ve got a lot of your workers compensation linked to performance related pay is also linked to performance. So a big part of their compensation is expected to be the bonus. And their normal salaries lower than that could put a lot of pressure on them. That could create a lot of stress for the worker.

Tim Hughes  46:46

Yeah, for sure. I mean, because there’ll be, again, industry specific, but depending on seasonal, or, you know, upturns downturns in markets, you know, can be things out of their control. So there’s certainly situations where you’re willing and able to work, and there’s no work there to be done. So, you know, real estate’s a good example of that, you know, when, when no one selling well, no one’s making commission, you know, so that would certainly be, you know, relative to the real estate market. But yeah, you know, yeah,

Gene Tunny  47:17

I’ve got to look more into exactly the compensation schemes there. I thought I understood it. But when I started talking about it with you, it was clear my level of understanding was not at the level it should be. So I’ll try and clarify that. But I think yeah, that’s a good example, where there is performance related pay, okay, well not try and wrap this up. I will end with the author’s main message, their final words here. So performance related pay is a relevant policy to improve firm performance, and competitiveness. Although the adverse effects on work intensification and employees physical strain and psychological stress should not be overlooked. Looking forward, new patterns of work from home and remote work will increase the relevance of performance related pay. Yep, yep. I think that’s probably true. Because it’s not about how many hours you turn up to the office for. I mean, one of the issues I had when I was in the workforce many years ago was because I, I like to walk around. And I mean, I like to think I did a lot of work when I was working for companies, or for public service, or whatever. But one complaint, and maybe this happens in every workforce, but there was one, at least one or two times when there was a complaint made that I wasn’t at my desk enough, or I wasn’t in the office, because I was that was walking around thinking about a problem, or I was out trying to hustle. And yet, I’d be someone would criticise me because I wasn’t actually at work. And that’s the wrong way to think about it, isn’t it? I mean, it’s, it’s what you’re achieving, ultimately.

Tim Hughes  48:59

Completely, I mean, I guess, you know, that would be a good case for, you know, what work has been done, you know, and who cares who’s walking around, it’s, you know, it’s very good for you. But if you’re getting the work done, because, I mean, that’s definitely a thing where people might be busy, they might be work for many hours, but they’re not necessarily being very productive. And when there’s presenteeism, where people can be at work, and just not very good. Yeah. And especially when they’re side gigs happening, you know, because their energy and thoughts are being put to another, another pursuit. So in containing that, now, if any managers out there looking to encourage intrapreneurship, you know, this is possibly worth looking into.

Gene Tunny  49:43

Yeah, we’ll have to get Phillip Di Bella on the show to chat about that, because Phil’s just around the corner.

Tim Hughes  49:49

Yeah, he’s got a lot of good stuff. And that was when I hadn’t heard that term before, intrapreneur. But it makes a lot of sense because it’s an outlet for people who have ambition, but don’t Uh, you know, you don’t necessarily have to leave your job to have ambition. So yeah, it’s, um, depends on the culture within that company whether they can allow that to happen or not.

Gene Tunny  50:10

Exactly. Okay. Do you have any other thoughts, Tim, before we wrap up?

Tim Hughes  50:14

No, I just got to make sure that whatever I’m eating is dead before I eat it and hopefully, hopefully I can bring something in to keep me sustained. 

Gene Tunny  50:20

Fanastic. Tim, thank you so much.

Tim Hughes  50:25

Thanks, Gene. You’re welcome.

Gene Tunny  50:33

Okay, I hope you found that informative and enjoyable. My main takeaway from looking at performance related pay is the importance of getting the design of the scheme right. So you actually motivate good behaviour. You end up with some bad behaviour if you don’t get the incentives right. As Tim and I discussed, on balance performance related pay schemes can be beneficial and boost overall business productivity and profitability. But that’s not guaranteed. We see that individual incentives work better when teamwork is limited, as in real estate, but they can be problematic when teamwork is required. One thing I should have noted in the main conversation is that rewards don’t have to be monetary. In a 2009 article on performance related pay, which I’ll link to in the show notes The Economist observed in their 1982 book In Search of Excellence, Tom Peters and Robert Waterman mentioned the great variety of non monetary incentives used by the excellent companies that they studied. They said that excellent companies actively look for excuses to hand out rewards. at Hewlett Packard, for instance, they found members of the marketing team who would anonymously send one pound bags of pistachio nuts to salesman who sold a new machine. That’s a bit of a quirky example, but it does illustrate that rewarding high performance and then be complicated. Celebrating wins with a team dinner or pizza night could be good for team morale. For example, I’ll put links in the show notes to articles mentioned in the episode, including to the eyes at a article on performance related pay and productivity. It’s really good and it’s easy to read. I’ll also add some links on how real estate agents get paid and on performance related pay at McDonald’s. This is how you can check out what McDonald’s has tried in Australia and in the UK. The Australian scheme does look better designed than the British scheme, because the Australian McDonald’s employees get extra benefits based on the individual performance rather than their team performance. My suspicion is that a group based incentive may be too weak to motivate performance. That said individual incentives can be difficult to apply when people have to work very closely together, and where it’s difficult to assess individual contributions. And in many businesses, teamwork is probably something you want to encourage. So it may be that you need to have a group incentive scheme of some kind, or an incentive scheme based on a mix of individual and group incentives. I’d say that you need to look at businesses and their workforces on a case by case basis to work out what’s right for that business. For now, I’d note that one of the major concerns with group based incentives is the free rider problem. Some employees may try to freeride on the efforts of other team members. However, there’s an intriguing new quasi experimental study which suggests the free rider problem may not be a big deal for some companies. The study was done by Anders Frederickson, Daniel Hanson and Colleen Flaherty Manchester, from Office University Siemens Gamesa in the University of Minnesota respectively. The researchers have written about the study in an ice at a discussion paper and an Avox EU article that I’ll link to in the show notes. They took advantage of the fact that a European dump truck manufacturer, high dreamer, introduced a group based incentive scheme and it’s planned in Denmark but not in Germany. Hence, they could treat the workers at the plan in Denmark as a treatment group, and the workers in Germany as a control group. The researchers then use what’s called difference estimation to establish that the group based incentive scheme increased performance by 19%. The researchers note that, despite free writing concerns stemming from group based incentives, being part of a group may have influence workers paid based on the performance of the group will naturally not tolerate that team members shirk, which leads to peer pressure. And team members even without peer pressure may feel some kind of internal pressure such as guilt or shame if they do not deliver in a team context. Okay, that sounds like a fair point to me. This new study adds to a small number of existing studies that actually suggest group based incentives can be beneficial in some businesses, particularly whereas there’s a close knit group which can prevent members from free riding How widely applicable is this finding? It may be too hard to say based on the limited number of studies so far, I might have a closer look at the evidence regarding performance related pay schemes and return to the topic in a future episode. But for now, I hope the discussion in this episode helps you understand the relevant issues and trade offs. Okay, please let me know what you think about this episode. What were your takeaways or thoughts on performance related pay? Do you have any experiences with performance related pay that you’d like to share? Where you’d like me to take a closer look at some of the issues covered? I was thinking that it may be worthwhile having a bonus episode discussing the methodology of the hydrangea study, as the difference in differences method can be very powerful. Let me know what you think. Feel free to email me at contact at economics I’d love to hear from you. Thanks for listening. rato thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact@ Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.


Thank you for listening. We hope you enjoyed the episode. For more content like this. To begin your own podcasting journey head on over to


Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business

Full transcripts are available a few days after the episode is first published at Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.

Podcast episode

ROI of education: how economists estimate it + US economic update – EP152

Do you get a return on investment if you get a university or college degree? Does the taxpayer get an ROI for any subsidies provided? Economics Explored host Gene Tunny discusses how economists crunch the numbers on the ROI of education with his colleague Arturo Espinoza. Gene also gives an update on the US economy, covering the strong jobs growth figure for July 2022 among other indicators.  

You can listen to the episode via the embedded player below or via podcasting apps including Google PodcastsApple PodcastsSpotify, and Stitcher.

Links relevant to the conversation:

Macrobond charts and commentary on the US economy (PDF)

Sheepskin effect (Wikipedia)

Estimating the return to schooling using the Mincer equation by Harry Anthony Patrinos, World Bank and Georgetown University (PDF)

Evaluating the Return on Investment in Higher Education: An Assessment of Individual- and State-Level Returns by Kristin Blagg and Erica Blom, Urban Institute

Reassessing the College Wage Premium Payoff by Jack Salmon, Mercatus Center, George Mason University

Rich Roll’s podcast

Graduate Winners: Assessing the public and private benefits of higher education by Andrew Norton

Estimating the public and private benefits of higher education report from Deloitte Access Economics

Median weekly hours data by qualification for Australia (Australian Bureau of Statistics)

Transcript: ROI of education: how economists estimate it + US economic update – EP152

N.B. This is a lightly edited version of a transcript originally created using the AI application It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

Gene Tunny  00:01

Coming up on Economics Explored.

Arturo Espinoza Bocangel  00:04

The mincer equation suggests that each additional year of education produces a private rate of return to schooling about five to 8% per year.

Gene Tunny  00:17

Welcome to the Economics Explored podcast, a frank and fearless exploration of important economic issues. I’m your host, Gene Tunny. I’m a professional economist based in Brisbane, Australia, and I’m a former Australian Treasury official. 

This is episode 152 on  the Return on Investment in Education. Joining me is my Adept Economics colleague, Arturo Espinosa. Arturo, good to be chatting with you. 

Arturo Espinoza Bocangel  0_00:00:41_

Hey, Gene, it’s my pleasure to be here. 

Gene Tunny  0_00:00:44_

Excellent, Arturo. So, today, what I’d like to talk about is the return on investment in education. So, whether it makes sense for people or rather the typical person to go to university or college. So, we’re talking about the typical person rather than a Bill Gates or Steve Jobs who dropped out of a top university and ended up founding a billion-dollar company, despite that. There are always going to be exceptional individuals who can thrive even if they don’t finish university. So, we’re not necessarily talking about them. Okay. 

We’re talking about the relationship between education and earnings and GDP at that population, or the whole economy level or for the average rather than specific individuals. And this is based on a question that came from one of my listeners – Dave, and he asked what I thought about this issue. Can economists demonstrate whether there is a return on investment in education? So, I thought this would be a good topic to cover on the show. So, if you’re happy to chat about it, we can get stuck into that a bit later. Okay. 

The first thing I want to do though, is I just want to go over this issue of what’s happening in the US again. So, I published an episode last week on US recession; is the US in recession or not? There’s a big debate about it. And the funny thing was, just as I was about to publish it, the Bureau, I think it was Bureau of Labor statistics released the new jobs figures, and they were strong. And that has really changed people’s views on how the US economy is going. It lends support to the view that the US is probably not in a recession at the moment. So, that came out just before I published it. And I thought, Okay, well, I’ll publish it, I’ve got the episode ready. I’ll cover this in the next episode, because it’s an important update. 

And this new report showed that; and this is according to the Guardian, and their quote in the actual data. So, it’s right. The US added 528,000 jobs in July, the jobs market return to pre pandemic levels, the US has now added 22 million jobs since reaching a low in April 2020. Unemployment rate dipped to three and a half percent. Okay. So, this has meant that the talk about the US recession that’s died down a bit, because this jobs report was so good. And just today, we’ve learned about new inflation data in the US that so it looks like inflation on a monthly basis is much lower. So, that’s suggesting to some economists that maybe the Fed doesn’t have to hike rates as much as was previously expected. And therefore, there may be less risk of the US going into a recession because of what the Federal Reserve’s doing. Of course, these are month monthly data. And I one thing I always caution about monthly data is you don’t want to read too much into month-to-month changes, because there could be statistical error; statistical noise in the data. And you can be misled by that. So, you want to look at things over, over many more months than that. So, that’s the one thing I’d say about that. 

It just goes to show how difficult it is to forecast or even to understand even to nowcast, even to understand where the economy is at the moment. And there’s a big debate still about what’s happening in the US. I received a great note from the macro data service that we subscribe to here, in Adept Economics. They said that’s macro bond. And they’ve looked at a range of data they sent out a great note on this. I’ll put a link in the show notes. And they’ve looked at the various indicators that the NBER, the National Bureau of Economic Research; what it looks at when it calls the business cycle in the state It’s and it’s not just GDP. It’s things like well, nonfarm payroll employment, personal consumption expenditures, real industrial production, real manufacturing and trade sales, real personal income, excluding current transfer receipts. And there’s a chart that they have there that shows that if you compare those indicators; these six major indicators with where they were earlier in the year, in January, most of them are still above where they were, except for real manufacturing, and trade sales in this chart here. So, I’ll put that chart in the show notes or a link to that so, you can see that. 

But what that’s telling us is that some indicators are suggesting there could be a downturn, others aren’t necessarily suggesting that. And the jobs market data, as we noted before, are incredibly strong. On the jobs market, on the labour market, I do have to note that the very high rates of job openings that they’ve had, so the jobs that are available, that is starting to come off from the very high level. So, there’s a chart that macro bond has produced from the job openings and labour turnover survey, and we had numbers up around 12 million, so 12 million vacancies, 12 million vacant jobs, and that’s fallen to below 11 million now, if I’m reading that chart correctly. Still, much higher than it was pre pandemic. So, it looks like there’s still very strong labour demand in the States, but it is coming off. 

Okay, so what do we make of this? It’s all a bit of a confusing picture. It’s probably too soon to tell whether the US is in recession or will go into recession. That said, I think Janet Yellen, the Treasury Secretary did make a risky call when she was so adamant that the US isn’t in one at the moment, because there’s always a chance that the economy could react badly or households could really react badly to these interest rate increases to try to control inflation, and then you do end up in a downturn. And then, months later, Janet Yellen is having to apologise for that, because she spoke too soon. 

Okay, so the main topic is going to be return on investment in education. So, we’ll get on to that now. And there are some big questions around this issue of the return on investment in education. So, what are those big questions? Okay. One, does it make sense for individuals? So, for people to go to college or university. 

Okay, now, there’s a general expectation or a general view that, you’ve got to finish high school, right? I think all the data suggests, you’ve got to finish high school, there are big returns to finishing high school. If you don’t finish high school, then your career prospects are limited, you’re going to end up in minimum wage jobs for the rest of your life. So, we know that completing high school is a positive thing. And therefore, state governments and school boards around the world fund secondary education. 

There’s a bit of a question now about well, what about tertiary education? And does it make sense for individuals to go to the tertiary education? And this is a question that economists are well placed to answer because it’s a question about the return on investment, isn’t it, Arturo? It’s a question of what you’re doing is there’s a tradeoff there. I mean, you’re sacrificing earnings that you could make today; you’re forgoing some earnings by going to college or university, rather than going straight into the workforce or working full time, you could have a part time job, of course, you’re spending all of this time. So, there’s an opportunity, cost of your time, three or four years in university or even more if you want to be a doctor, and then that’s in the hope of having higher earnings over your lifetime. So, you’ve got to think about well, does that make sense as an investment? Does it makes sense to make that investment? Now, those foregone earnings, any tuition fees, you may have to pay? Or loans you have to take out and then pay back? Do you get compensated for that through your lifetime from higher earnings? I mean, the general answer, the broad answer is yes. I mean, if you look at the data, people with higher education degrees, earn more on average than those without; we know that. We’ll go over some figures a bit later in this episode. We’ll look at some of the studies. So, we know that occurs, the question is, does that compensate you enough for the cost of the tuition and also the foregone earnings? So that’s the basic economic question, isn’t it?

Arturo Espinoza Bocangel  10:11

Yes, definitely. Yes. Individually, you will face that important decision between, okay, if I study one additional year, how much I will receive as a return. For example, in my case, I study Economics in Peru, then I was there around five years, and then I decided to study overseas. And I choose to study Mastering Economics and Public Policy here in Australia, because at that moment, I expected to receive or a higher return for those years of education. That was a purely economic decision. So, that’s why I’m here now in Australia after finishing my Masters, and now I am working with you.

Gene Tunny  11:10

Very good. Yes, yes. I think what you find too with students who come from overseas to either Australia or to United States or UK, I mean, there’s also a benefit from coming to an economy with higher productivity on average or higher earnings. So, there’s certainly a benefit there, that helps out too, and also, there can be benefits to some people, because if you get permanent residency or citizenship in a country, that can be a great benefit to people to, of course. 

Now, we’ve been talking about financial benefits. One thing I should acknowledge, because I know if you’re, you know, some people might bring it up in the audience, because it is a point that does get made from time to time. It’s this point that they are going to be non-financial returns to tertiary education. Okay. I mean, university is one of the best, the some of the best years of your life, really. I mean, if you get involved in various activities at uni., you make great friends. I mean, you could join a debating society, various other clubs, you make friends for life, interesting people, a great conversation. So, there are all of these non-pecuniary returns as well. But we’re not factoring those into this discussion, because you can’t really measure those. 

So, we’re talking about does it make sense for individuals to go to college? And yes, economists can attempt to estimate this, given the available data. And the way they do this is through these mincer earnings regressions. Now, I’m going to ask you about those a bit later, because you’ve been looking at that. And that’s after Jacob Mensa, who is a Professor of Economics at Columbia University in New York City. The studies of the returns to education, they’ve been helped out a lot by just the great data sets we have now in many countries. However, in Australia, we have this Hilda survey, this household income and labor dynamics Australia survey, which is a longitudinal survey. So, it’s panel data, you’re tracking individuals over time. In the US, there’s the Panel Study of Income Dynamics, which is the gold standard panel data, set or longitudinal data set, and that’s what the Hilda was trying to replicate.

So, one big question is does it make sense for individuals to go to college? And then, I think the other big question is, does it make sense for the government to subsidize college investment? University investment, to subsidize tuition to an extent. And what we find is that, I would say in most of the OECD economies, or in most of the advanced economies, there are very substantial subsidies to higher education in Europe and the UK, in Australia, although it’s a mixture here. I mean, we’ve got an income contingent loan scheme, which was called HECS I think now it’s called help, but it’s the higher education loans program whereby there’s some subsidy for your tuition, but the rest of it you effectively borrow from the government and you have to pay it back through the tax system. So, this HECS/help system okay. You’ve heard of that, haven’t you?

Arturo Espinoza Bocangel  14:36

Yes, I heard something about it, yeah.

Gene Tunny  14:39

So, in the 70s, the government at the time, the Whitlam government, I think you helped me out on a presentation we were looking at that; just the changes that came in during that government in the 70s. It made university education free, and that led to the Commonwealth would just subsidize the whole cost of course. And that led to a big increase in tertiary education. But by the late 80s, it was clear that that was very expensive, and that they had to introduce this HEC scheme as Higher Education Contribution Scheme where people would contribute when their income got over a certain level. So, it’s an income contingent loan. And this was something that was designed by Bruce Chapman who was an economist today. 

Initially, the amount of HECS you had to repay was pretty low, I hardly had to pay anything back when I went through in the 90s. But over the years, it’s become a bit more substantial. But still, there is a very generous subsidy from the Australian Government to higher education here in Australia. I think there’s some support in the states in the US, depending on what sort of college you go to. There are state colleges, there’s state university system saying California, there’re student loans you can get, there are scholarships; I think there are more private scholarships in the US than there are here in Australia. But generally, there’s less public support, less public subsidy for university or college education in the US than there is an Australia. We’re not as generous here in Australia as they are in the UK, or in the continental Europe, in France or Germany.

Arturo Espinoza Bocangel  16:28

What about those developing countries, like Peru, and Chile? I know that those ones are still providing scholarships to study overseas. So, they tend to promote national student to study around the world in order to enhance their knowledge and then come back.

Gene Tunny  16:56

Yeah, yes. Yeah. I’m not an expert on that, Arturo but yeah, if actually, we probably should look at what’s happening in some of those other countries, in Latin America sometime that would be interesting. Okay. 

Okay, we’ll take a short break here for a word from our sponsor.

Female speaker  17:16

If you need to crunch the numbers, then get in touch with Adept Economics. We offer you frank and fearless economic analysis and advice. We can help you with funding submissions, cost benefit analysis studies, and economic modelling of all sorts. 

Our head office is in Brisbane, Australia, but we work all over the world. You can get in touch via our website, We’d love to hear from you.

Gene Tunny  17:45

Now back to the show. 

So, they’re the big question. Are there returns to individuals to go to college? Does it make sense for the government to subsidize college? And look, there’s another, there is another question that sometimes comes up, but it’s not one we’re going to explore in great detail on this episode. Have you heard of this sheepskin effect?

Arturo Espinoza Bocangel  18:12

Gene, more or less, yes, yeah.

Gene Tunny  18:14

So there’s this idea; there’s this effect called the sheepskin effect. It’s named after the fact that, I think once upon a time, university degrees, so if you got it from Oxford, or Cambridge, or Harvard or Yale back in the, the 18th century, or whenever or 19th century, your degree was on sheepskin. So, I think that’s where it comes from. But there are some economists who have speculated that if you look at the average earnings of people who complete year 12, or finish school, or finish a university degree, versus those people who nearly finished it or similarly experienced or similarly clever, or whatever as the people who actually did get the degree or the diploma than the people who got the degree or the diploma, get an extra benefit, it looks like they get a boost in their earnings relative to those people who look very similar other than the fact that they just didn’t get a qualification. 

So, there’s this view that, well, there’s this sheepskin effect. And some economists have speculated that that means that a lot of education is just sorting, it’s just figuring out who are the highly productive people that doesn’t actually confer much of a productivity benefit itself. All it is, is it’s signaling, it’s signaling that these people are high quality individuals. And that’s what the benefit of that education is. Yeah, I mean, one of the prominent economists associated with that view is Brian Kaplan. He wrote a book – The Case Against Education for Princeton University Press he’s associated with, might be George Mason, I better get that right. I’ll check and put it in the show notes, but he’s often on Ross Roberts’s podcast – Economics, or Econ Talk, I mean. He’s quite prominent in making in expressing that view. 

I’ll put some links regarding that sheepskin effect. I’d like to think that a lot of the benefit from education is certainly it is from lifting your productivity or making you think critically, I mean, as a former university teacher, and as you are, I mean, you’re doing some tutoring there, you would like to think that most of the benefit that you see in terms of higher earnings of university graduates is related in some way to what they learn or the development of critical thinking skills at university. 

Okay. So, just note that as a bit of a caveat or a qualification on what we’re talking about today, and maybe we’ll come back and look at it in a future episode. Any of these topics, Arturo, anything in economics; there’s just so much you could talk about, there’s so many studies, so many different perspectives, we just have to limit it to what we’re looking at today. 

Okay, so you found an interesting study on the return on investment in education. It’s a Cross Country Study, is it? Can you tell us about that. 

Arturo Espinoza Bocangel  21:25

It’s a very interesting study, and the author is Harry Anthony Patrinos, he’s an advisor from the World Bank. And he also specialized in the Economics of Education, particularly the return to school in school based management, demand side financing and public-private partnerships. So, his study, which is related to the return to school in using the mincer equation. Basically, he highlights that the mincer equation suggests that each additional year of education produces a private rate of return to schooling, about 5 to 8% per year.

Gene Tunny  22:11

That’s a real rate of return, is it? And so, that would mean, it’s a relatively good investment. If you think about what’s the cost of borrowing or what’s the opportunity costs.

Arturo Espinoza Bocangel  22:24

With the current fee for example of inflation, that is not going to be a good value. 

Gene Tunny  22:32

But is that a real return? I think it wouldn’t it be.

Arturo Espinoza Bocangel  22:34

It could be, but I’m not sure.

Gene Tunny  22:37

Okay, I will check that and put it in the show notes. How does he interpret it? Does he interpret that as a positive? Is he saying that it suggests that education does yield a good return?

Arturo Espinoza Bocangel  22:49

He’s positive. That is the main message that another important findings related around the world. So, in general terms, the returns to tertiary education are the highest. So, that mean that people who will study university level or trying to get a university degree, they will get a higher rate of return.

Gene Tunny  23:19

So, there are big gains from going to university then. So, he’s looked at all around the world, has he?

Arturo Espinoza Bocangel  23:26

Yes. it’s like considering most of the countries. Yep.

Gene Tunny  23:33

And has he just reviewed existing studies? Or has he done his own data analysis?

Arturo Espinoza Bocangel  23:38

It’s he’s own analysis. 

Gene Tunny  23:41

Okay. Oh good. Well, I’ll put a link to that in the show notes so people can check that out. Generally, that makes sense, right? I mean, there are various studies that show there is a positive and a reasonably good return on investment, private return on investment for education for university or college education. And you talked about the mincer equation. So, what that’s trying to do, you’ve got this statistical equation, econometric equation where you’re getting data on earnings of individuals, is that right? And then, you’re looking at the different characteristics of those individuals, their sex, their age, their years of experience; whether they’ve got a qualification on all the things that you think could influence their earnings, and then you’re testing whether the contribution or whether there’s a statistically significant relationship between having a degree and your earnings and what’s that contribution, what’s the uplift to earnings from that degree, is that right?

Arturo Espinoza Bocangel  24:47

Yes, that’s right. That means your equation estimate the average impact on one additional year of education on the wage. Yeah.

Gene Tunny  24:56

Okay. So, then you could also use to determine whether; can you use it to determine whether a qualification, university education helps gives you an uplift?

Arturo Espinoza Bocangel  25:10

Gerry’s methodology when you use categorical variables.

Gene Tunny  25:16

Okay, categorical variable, okay, good.. So, you could you could determine that. I mean, there are a wide variety of ways to do this; many ways to skin a cat, probably many ways to specify the variables in a mincer earnings regression. Okay, so that’s that study that you mentioned. We’ll put a link in the show notes to that. 

I’ve had a look at some studies from the States and from Australia. And for the US, I’ve looked at this; there’s this great briefing note that’s come out of the Urban Institute. And that’s a leading think tank in Washington, DC. It’s not particularly partisan. As far as I can tell. I think they do good work. I’ve had one of their people on my show in the past. Steve Rosenthal is a tax policy expert. And we talked about all of the various tax loopholes there are in the in the US. So, this paper from the Urban Institute that I think is really good is called Evaluating the Return on Investment in Higher Education: An assessment of individual and state level returns by Christian Blag and Erica Blom. So, they’re looking at does it make sense for individuals, for private people to go to college? Does it make sense for the state government in the relevant state government in the US. I think, because state governments have a big role in the provision of the college or they’ve got their own state-based university systems. 

Here in Australia. Even the, even though the universities have been set up under state acts of parliament, typically, so there’s a University of Queensland act here in Queensland, there’d be a University of Sydney act in New South Wales. Even though that’s the case, the federal government has largely taken over university, so the funding of universities and administration of them or the policy settings for universities. 

So, what this Urban Institute study finds or rather a review, and they do do some number crunching themselves, I should note. So, they find that, for most an investment in higher education yields a substantial economic and personal return, but this investment may not pan out for some students. okay, so we’re talking about students on average, or the majority of students; some people can obviously go to uni., and you know, maybe they have some bad luck. Or maybe they study something that’s not really in demand. So, we’ll talk about that a bit later. Because we’re economists we know that supply and demand is everything, ultimately, okay. And there are big differences in returns for different fields, and also between the level of the degree. So, they go, a bachelor’s degree recipient will typically have higher earnings than an associate’s degree recipient, and a Harvard graduate will likely earn more than a graduate from a nonselective four-year school. However, the relationship between the students selected degree level major and institution can be complex, in some degree major scenarios may not pay off until later in life or ever. Right. Okay. 

Now, in that Urban Institute paper, they present some return-on-investment estimates. So, what economists call internal rate of return, which is a yield – an investment yield. So, what’s the rate of return you get on that investment? And so, they find, like, depending, and I’ll put a link to it in the show45 notes, but depending on the degree area, and depending on the level, it differs. So, business management looks pretty good. So, if you go to a private, not for profit, four year college and you do business management, you’ll get an 18% return on investment. The way to think about that is well think about, if you made an investment in the stock market, and you were getting, I don’t know, 7 or 8% or whatever, even less a year. And that’s not what you’d compare with that business management, that yield of 18%. Now, if they’ve calculated that properly, that should be a real rate of return. So, that’s a very good real rate of return, 18%.

So, business management, good stuff. I mean, we’re economists, so we’d probably fall in business management, unless we’re in social and behavioral sciences. Those rates of return are a little bit lower, humanities a bit lower too. Life sciences here are in your near calculations; they have relative well, much lower rates of return. So, 9% compared with the 18%, for business management, the worst here looks to be education at 7%. And yes, so education seems to be less lucrative than these other fields.

I’ll put the link in the show notes to that so you can check that out. 

There are various studies of the returns on investment to different fields, and it’s going to depend on your country and depends on supply and demand too. I mean, if you’re in the US, for example, and you get an IT degree, or you specialize in artificial intelligence, or whatever the latest hot thing is, or data science, and you’re probably going to get a higher return on investment, because there’s a big demand for that sort of thing at the moment.

So, the Urban Institute paper moves on to talk about the return to the state government, whether it makes sense to have subsidies for tuition. And look, they just, we don’t really know as to how to work out. There are so many things to consider. You get additional tax revenue being; one of the big gains that governments get from subsidizing higher education is that if you get people more educated, more productive, they’re going to earn more, they’re going to pay more tax. And the way that; this is particularly the case in Australia because of the progressive nature of our tax system. So, as you earn more, you go your higher tax bracket, your marginal tax rate increases. So, there’s a big benefit to government. And we’ll talk about that a bit later. 

I think, in the States, there is still a benefit to the state governments and they would be to the federal government, I think it’s probably less than what it would be in Australia. And one of the things that makes this so challenging is its tax, but it’s also the fact that the government could save money in other ways, too. There could be lower crime with if people are better educated, and then you don’t spend much on crime. There could be less spending on social services, on your transfer payments for those people. Well, we know that if you’re more educated, you’re less likely to become unemployed, you’re probably less likely to need unemployment assistance. Yes, that’s true. And you could also be healthier too. And you could save; I think there there’s some evidence that people who are better educated are healthier, in fact, I think they work out more. 

Now, once upon a time, if you had a manual job, you would be fitter and healthier than someone who didn’t. This back in, I don’t know, early 20th century or something. But what’s happened? Nowadays, if you’re more educated, you’re more likely to work as a professional, then you’re probably more likely to go to a gym and go cycling, go swimming, than someone who isn’t.

Arturo Espinoza Bocangel  33:09

I know that there’re a lot of paper related to if you’re more educated, you will consume healthy foods. 

Gene Tunny  33:19

That’s true. You’ll consume healthy foods and you probably don’t consume as many; you don’t have the unhealthy stuff. You probably don’t drink as much. You’re not having a beer after work every day. Yeah. 

Not that I’m saying everyone’s doing that, we’re talking about averages. Because there’s certainly going to be, well, people who are highly educated, successful who are alcoholics right? And who have to sort themselves out. Rich Roll was a good example of that. Rich Roll is an ultra-endurance athlete. He’s got a great podcast. And he’s in California is in Malibu, and like, he talks about how he was, he’s a Stanford Law graduate, sort of a college swimming champion. And he was a lawyer, highly successful, but just drinking too much. partying too much, and it just caught up with him and he had to have a complete change of lifestyle and, and go to Alcoholics Anonymous, his story’s incredible. So, if you’re in the audience, and you’re interested in that, I’ll yeah, I’ll put a link to Rich Roll’s podcast because he’s fascinating. Okay. 

The other thing to think about with the public return to education is spillover benefits, or the fact that if you have a more educated population, then that lifts other people up too. It’s sort of like that whole rising tide lifts all boats, or maybe that’s not the right analogy. But essentially, you If you’ve got more educated people in the workforce and other people can learn off them. And also, it can lead to greater innovation. And there are spillover benefits from innovation. So, more educated people, more creative people, they can solve problems, they can innovate and develop new products. And that provides a benefit. 

And in that Urban Institute paper, they talk about some study by Moretti. So, a 1% increase in the supply of college graduates raises the wages of high school dropouts. 1.9%. Okay. Who knows? I’d have to look closely at that study to see whether that’s plausible. There’s probably an effect is possibly it’s probably not that high. And the Urban Institute paper acknowledges that there was a paper from Smo, Lu and Angrist, 2000, that finds smaller spillover effects, I’ll have to look at how what the magnitude of that is. 

The general point is that there’s going to be some spillover benefit, or some benefit that’s wider than just the benefit to you, the benefit to the government through the taxpayers, through higher educated people paying more taxes. That’s difficult to measure, positive, but just very difficult to measure. Right. 

So, what they say, in conclusion, is that; we can’t work it out. There’s a benefit to the state governments as a benefit to the public, we can’t really work it out. So, we can’t tell you whether, on average, it’s the state gets a return on investment. 

Now, we can for Australia. There’s some good evidence in Australia that there is a return on investment, not just to the individual, but to the government as well, which I’ll go over a bit later. Before we move on to Australia. I just want to talk about the trend over time. There’s a lot of discussion about whether the college wage premium in the states, what they call the college wage premium, whether that has stagnated. And there’s a note that I’ll link to from Jack Salmon, who’s a research associate at Makeda Centre at George Mason University. So, there are some big names at George Mason people like Tyler Cowen, and he’s got a great podcast. And he’s one of those renaissance man, just talks about everything; brilliant guy,  and also the host of Macro Musings, David Beckworth is there too, he’s at Makeda center. 

And what Jack Salman writes is that he talks about; there’s been a stagnation in the college wage premium over the last 15 years. And the problem, and this is an issue for the future. So, generally, college has been a great investment in the States, but it’s becoming less, so as the cost of going to college has risen. So, what he’s saying is that this college wage premiums remained flat. So, the uplift you get in your earnings, but at the same time over that 15-year period, the cost of college has grown by more than 50%. So, the cost of college is just growing massively. And when I’m not sure why that is, but I mean, it could be, I guess it’s your input costs, isn’t it? It’s the cost of skilled labor to do the teaching. It’s the whole Bowmore cost disease thing that we know about.

Arturo Espinoza Bocangel  38:35

Inflation too.

Gene Tunny  38:37

I guess what they’re saying is that it’s higher in other sectors of the economy, it’s higher in higher education. And perhaps it’s you know, it’s sort of, I guess, the fancy facilities that they need to provide nowadays, the, the theatres and stadiums, etc. 

He’s just highlighting that, look, there’s this issue, there’s this growing issue that it could mean that for many people, it doesn’t pay off. But generally, it’s been a good investment but your individual returns may differ from the average. So, if you’re looking at making the decision whether to go to college or not, it’s got to make sense for you. 

Nowadays, I mean, I think there are a lot more there probably, a lot of opportunities to make money outside of university or college more than there were once upon a time. I mean, I’d still recommend people go to university, but when you think about all the opportunities; there are freelancing, opportunities to teach yourself via online courses, opportunities to then make money from freelancing or if you’re really good, and you’ve got a huge audience, you could become a YouTube star. I mean, that’s a very limited number of people though, so maybe that’s not a legitimate career, aspiration or strategy. 

I mean, what do you think, Arturo, do you think generally University is a good idea?

Arturo Espinoza Bocangel  40:00

I think in general education, for example, there are some technical education also. If our society may have higher population, or highly educated population in relative terms is going to bring positive externalities. Or whole the society, I’ve seen that this is always education is, I think the best option.

Gene Tunny  40:38

Right? So, you’re talking about externalities. So, these are the external benefits beyond the returns to the individual. Are you talking about things like lower crime. I mean, what other things you’re talking about? Are there no cultural improvements? I don’t know. I mean, yeah, I guess there is a view that having a more educated population does have wider benefits than just to the individual. I mean, greater and more knowledgeable society, right? More informed public debate. So, we would hope that our political leaders make that decision. 

Okay. I think that’s a good observation. So, before we wrap up, we might better cover the Australian evidence. The two studies; and I’ll link to them in the show notes, I found that are relevant to this is there’s a study by Deloitte Access Economics, and there’s one by the Grattan Institute. The Deloitte one was from 2016. And it found that on average, 52% of the observed differences in earnings between bachelor degree holders, and those without any post school education, can be attributed to qualification effects rather than demographics or innate ability. Okay, so they’re finding that, there’s some self-selection of high performing individuals into bachelor’s degrees. So, some people are more conscientious and productive are going to study, they’re going to do that anyway, rather than go into the workforce full time early. So, some of the difference in average earnings between bachelor degrees and people who don’t have them, that’s going to be due to the fact that, yeah, they’re just more conscientious or they’re harder working. 

But then, what Deloitte saying is that they’ve done some econometric analysis, and they’ve concluded that half of that gap, or that difference, half of the higher earnings is due to having the bachelor degree, so, the university education. 

Now, one thing I should have checked was, what are the data tell us about average earnings of bachelor’s versus not having any post school, I’ve got the figures over a lifetime, we’ll talk about later. But I have to look at that. But if you think about it, I mean, if you’re on minimum wage here in Australia, and that’s probably what you’d be on, if you don’t get a higher education degree, you would be getting maybe 40 to 50k, if you’re full time. Okay, so the national minimum wage is 812 60 per week. So, what does that equate to over the year? Yep, so that’s, that’s 42,255 over the year, so I was sort of in the ballpark, which is good. And if you think about it, if you get a university degree, and you graduate, and you’ll get in, if you get into a graduate position, then you’re going to be at least in that 55 to $60,000 range. And then as you progress through the career, you’ll get up to 80 or 100, or even higher. So, yeah, there’s definitely an average difference in the averages for people with bachelor’s and not with bachelors with no post school. So, I’ll put a link to ABS data on that so you can check that out. So, generally Deloitte find that it makes sense for individuals. It looks like it’s a good investment. 

So, we might talk about the final study that we’re going to consider today; it’s from 2012, but it’s a very good study. I think the findings probably still are relevant today. And it’s by Andrew Norton, who was at Grattan Institute at the time. I know Andrew quite well. He used to be at Centre for independent studies, which I’ve had a lot to do with here in Australia. And Andrew in his analysis concludes that graduates do well out of higher education. They have attractive jobs above average pay and status. They take interesting courses and enjoy student life. And that’s what I was talking about before those non-financial benefits. And then given these large benefits and with the help student loan scheme in place, that’s at higher education loan program. Most subsidies are for courses that students would take anyway. Benefits greatly outweigh the costs for most students and the minority of graduates who don’t win through higher income never pay for their degrees as a result of the help scheme. In effects, today’s tuition subsidies redistribute income toward graduates at the expense of the general public, particularly those who do not go to university. 

Okay, so the point of Andrew’s report back then was to argue that, people who go to university are doing incredibly well. So, therefore, the government should require them to contribute more of their income when they succeed later in life. And I think the government may have adjusted those repayments. I’ll have to check, but Andrew was essentially saying that back in 2012, the way that the policy settings were the rate of recovery of the money of this HELP loan, or the government wasn’t requiring you to pay enough of your education, there was there was a heavy subsidy. So, he’s saying they should cut that subsidy. That was back then. I mean, there’s still heavy subsidies now. But I haven’t seen this study replicated recently, just to see how extensive that is. There are big returns and he’s got these great data here, he’s got in one of the tables, table seven, median gross lifetime income by level of education. And let’s look at Niles; he’s got to split by male and female, it doesn’t have it for people, for everyone. So, year 12, if you get year 12, your median gross lifetime income is $1.7 million. But if you get a bachelor degree, it’s $2.8 million. So, the difference for a male between getting year 12, and a bachelor’s degree, if you get your bachelor’s degree, you earn $1.1 million; that’s Australian. So, if you’re in the States or somewhere else, just note that the Australian dollar sort of, averages around, I don’t know 75 US cents, okay. 

And for women, the difference is $800,000. That’s going to be partly because many women take time out of the workforce because they have children, and they’re the primary carer for children, or for sick or disabled relatives or elderly relatives.

So, that’s good that Andrews got those stats in there. Just bear in mind, that’s 2012. So, those numbers would be inflated now, because you’d have to adjust for inflation since then. 

One of the neat things that Andrew does is he calculates to what extent the government wins from having graduates because of their higher earnings and their higher tax paid. And this is his point that I think in Australia, because of the way our tax system works, it’s highly progressive. Then as people get higher education, they earn more, they become doctors or lawyers, or public servants, or economists or physiotherapist or whatever, then they’re paying more of their income in tax. And the government does extremely well out of that. And this is great. So, Andrew concludes it benefits. The net public financial benefits for the median graduate. Yeah, it’s strongly positive. Okay. So, for engineering, for example, you’ve got, you’ve got a net public financial benefit of $425,000. Over the lifetime, dentistry looks really good. If you’re a male dentist, you get; this is for the government net public financial benefits. So, it looks like it’s nearly 800 to 900,000 on that chart. Medicine, similarly. Law, a little bit lower, but still, you know, 700, 800,000. Commerce, bit over half a million. 

Quite substantial returns to the government. So, that’s to the government from just your medium graduate. So, if you think about, well, then there are the ones above that, and there’ll be contributing even more than that. But then as you go down the scale, the amounts decrease, but even so, even for education or nursing graduates, it’s still a $200,000 net public financial benefit. It gets lower as you go to agriculture. For males, it looks like it’s 150,000. For females, if they’ve studied agriculture, I don’t know, 50 to 100,000. Humanities, sort of around 100,000. On net still positive. 

The one field where there was a negative return and this is something that Andrew points out is performing arts. Performing arts graduates have a negative $40,000 net public financial benefit from studying. And he’s written that at least financially, the public would have been better off if the performing arts graduates never went to university. So, that is just going to reflect the types of people who study performing arts and then it’s going to be more creative people, and they’re going to be artists, and they’re going to have spills out of the workforce, or might be working in cafes, where they’re trying to get their big break. And it’s such a difficult thing to have a career in, really. I mean, it’s one of the things where, if you win, if you become Chris Hemsworth, or Margot Robbie, right, you’re going to be a superstar, you’re going to make millions of dollars, but most people who are in performing arts, they’re not in that league and so yeah. Okay, so that makes sense. 

And then, Andrew cites some studies of the rate of return, the yield, the internal rate of return on education in Australia, from people like Jeff Borland and others, and they generally show that the decision to attend university is financially sound in Andrew’s words. So, high internal rates of return on education investment, Jeff Balland found 12% for both genders. 15% for males 17% for females.

There was another study by Daly, et al. So, Daly and others, 2006: males 15% females 12%. Right. Overall, big returns from the going to university. And, you know, even though more people have gone through university in recent decades, at the same time, you’ve had this sort of skill biassed technical change, you’ve had a greater demand for universities that these graduates at the same time. So, even though in the states it looks like the college wage premium has stagnated, you still do have reasonably good returns to higher education; you do still in Australia. I think it’s probably for the average person or the average person looking at going to university, it’s sensible. It’s financially sound. I mean, I would certainly recommend it. And particularly being a former university teacher, and still having a connection with the University of Queensland and in various different ways. I’m sure you probably would too, Arturo recommend? Anything we missed anything we should cover in a future episode on return-on-investment education?

Arturo Espinoza Bocangel  52:41

Probably, the gap between female and male return? Yes. It’s quite notorious. How Australian male are receiving more or higher wages than female?

Gene Tunny  52:57

Well, we’ve covered that gender or talked about gender pay gap in previous episodes. A lot of that gap can be explained by observable characteristics or the industry or occupation that people are in. But yeah, there is still a gap that you can’t explain, and hence, possibly could be attributable to discrimination of some kind, but it’s not the bulk of the gap, it’s a few percentage points, if I remember correctly. But yes, that is an issue that we could revisit in a future episode. 

Okay, well, Arturo, if there’s nothing else, I think we better wrap up because we’ve gone for nearly an hour. And yeah, it’s been great chatting. So, thanks for joining me today.

Arturo Espinoza Bocangel  53:40

No, thank you, to you Gene for having me. 

Gene Tunny  53:43

Very good. Thanks Arturo. 

Okay, that’s the end of this episode of Economics Explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. 

If you have any comments, questions, suggestions, you can feel free to send them to and we’ll aim to address them in a future episode. Thanks for listening. Till next week, goodbye.


Thanks to Josh Crotts for mixing the episode and to the show’s sponsor, Gene’s consultancy business consider signing up to receive our email updates and to access our e-book Top Ten Insights from Economics at Also, please get in touch with any questions, comments and suggestions by emailing us at or sending a voice message via Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.