Overview of the Sharing Economy and the Emerging World of Work
How the Sharing Economy Looks Like ? Anybody who has hired an Uber cab or a cab from any other ride-hailing and app-based company would know something about how this new paradigm of capitalism works. For instance, when you book an Uber, you do so in the knowledge that you need it do through an […]
GDP: The Broken Window Fallacy
There is one fact about the GDP which is often misquoted in the media. I am sure all of us have heard the following statement “XYZ war helped increase the economic output i.e. the Gross Domestic Product of ABC country”. The most famous example being USA’s participation in the World War-2 helped its economy come […]
What is Meant by Inclusive Growth and Why it is Important ?
We often hear the term inclusive growth in the papers and in various media where experts pronounce that while growth is good, there must be what is known as inclusive growth as well. So, what does the term inclusive growth mean and why is it so important? To start with, inclusive growth refers to the […]
Transaction Costs in the Real Estate Market
Flipping properties may sound like a good idea to the novice real estate investor. However, anyone who has even engaged in real estate transactions even once or twice knows that there are significant costs associated with real estate transactions. These costs are called “transaction costs” because they are triggered when a real estate transaction takes […]
China’s Modern Day Ghost Cities
The GDP system has found several criticisms. However, none of the criticisms have been as apparent as an unusual phenomenon called “ghost cities” and “ghost towns” which have cropped up all across China. The sheer wastage and diversion of resources to non productive purposes to meet the government’s targets for GDP growth is apparent in […]
Numbers tell stories, reveal facts and underlying patterns. If put together and analyzed correctly, they offer insights and provide a strong base for making important decisions.
Data (numbers) tell you the effect of something and thus, serve as a mere indicator, critical though. From an analysis perspective, however, it may not suffice. They represent the ‘what’ and most likely, you want to know the ‘why’ also.
This is where econometrics comes in.
It offers the answers to ‘why’, so that you can take actions to:
Let’s try and understand further:
Say, for example, the employee productivity in a particular department is decreasing. Now what would you want to know? Probably, things like:
Since any outcome directly or indirectly hits your ROI, you wouldn’t want to adjust your HR policies without any concrete foundation. Rather you would test their practicality.
Econometrics finds its applicability here. It tests the economic viability of a decision and derives the more exact cause and effect relationship.
Econometrics, therefore, can be defined as:
It helps in, both, analyzing the impact of an existing phenomenon and testing a given hypothesis.
We have already seen how it can be of help in the case of an observed phenomenon. Let’s now see examples where econometrics can test hypothetical situations:
Say, for example, you want to study the hypothesis that a learning and development initiative will result in improved employee productivity.
Most companies nowadays have a separate learning and development department, introducing new ways of skill enhancement and constant learning. Needless to mention, it involves a huge expenditure. What needs to be considered here is that:
Therefore, L & D managers can resort to econometrics models to determine which initiatives are more feasible and lead to higher returns.
Econometrics here can be defined as:
Here is another situation where econometrics can be applied.
Promoting employees is a way to show that you respect their contribution and want to reward them for it. A merit-based promotion will motivate your workers to put forth the extra efforts on continuous basis. This may also prompt innovation and creativity. Because of its obvious benefits, you want to introduce merit-based promotion in your organization.
It’s a great practice but may spread unrest among experienced employees. They may not perform the way they have been. In worst cases, they may leave the organization, if they see inexperienced ones being promoted. Apart from losing the trusted employees, you end up spending huge costs to seek their replacement.
This means the actual impact of a practice cannot be measured without taking the pros and cons into account. This is where econometrics plays a role. You can identify the more optimal state using econometrics analysis.
The most distinguished feature of econometrics is that it also takes into account the random error, cons or the possible side effects of a decision or an initiative, along with the variables. And since it’s about performing quantitative analysis, it’s obvious that the variables are given numerical values. The procedure is carried out to either verify a given hypothesis or analyze the impact of an observed phenomenon.
An econometrics analysis can be conducted in several ways:
An econometrics analysis makes use of numerous techniques, linear regression being the most basic tool. More advanced techniques include:
Econometrics find its applicability across all industries, including but not limited to finance, agricultural, legal, education, information, health, IT, insurance, natural resources, manufacturing, geography, welfare, telecom, digital, eCommerce, international business and so on.
It can be used to analyze all kinds of situations, business processes, policies, decisions and actions taken by any organization. You can use it for a large number of issues to investigate their effect, without actually modifying a process or a system.
Econometrics is not an easy subject. But we simplify the complexities for you. Studying econometrics with us is sure going to be a pleasant experience. Dig in to learn more about it.
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