The Unassuming Economist

“Although there are signs of cooling in the housing market and personal lending growth has been curtailed, financial vulnerabilities remain due to high household debt and elevated house prices,” according to the new IMF report on Malaysia. Specifically, it says “House prices have risen steadily (…) outpacing incomes and rents. Although population growth is strong this cannot fully explain the increase in house prices compared with other countries. However, there are tentative signs of cooling in the housing market in Kuala Lumpur. Residential supply is increasing (…) and is particularly strong in Johor and has recently recovered in KL.”

“After a period of downward correction in 2008-09, Malta’s housing market seems to have stabilized,” notes the latest IMF report on Malta. However, the report says that “One of the main risks facing core domestic banks relates to their exposure to the real estate sector. Around two thirds of loans extended by banks are secured with real estate collateral, and mortgages are one of the few segments of bank loans which have been increasing recently (unlike loans to NFCs). It is important to continue mitigating the risk of exposure concentration to the real estate sector by the application of a cautious collateral valuation and conservative loan-to-value ratios. There is also room to enhance the loan foreclosure process by advancing judicial reform. This risk can be exacerbated by the weak performance of the EU countries, generating negative spill-over effects on the Maltese economy and its financial sector. “

Florence Jaumotte and Carolina Buitrom report “strong evidence that lower unionization is associated with an increase in top income shares in advanced countries during the period 1980-2010”. Read all about it in this issue of Finance & Development, the IMF’s quarterly magazine.

• Declines in unionization have been associated with increases in inequality. The conjecture that the rise in inequality is not just due to trade & technology but to changes in bargaining structures has often been made, including in a very recent NYT column by Nick Kristof. My colleagues Florence Jaumotte and Carolina Buitron present systematic cross-country evidence to show that declines in unionization are associated with increases in the share of income going to the top 10 percent.

• The installation of ATMs did not lead to a decline in the number of bank tellers. At a time when we are told robots may replace us all, Jim Bessen’s article offers this concrete example of hope that technology does not lead to widespread unemployment. Technology however can be associated with increased inequality.

• “Wages are set to grow faster than productivity, at least over the medium term”. That’s the bold prediction from the ILO’s Ekkehard Ernst. But again, inequality’s the rub: “the bulk of that [wage] increase will accrue only to a small group of skilled workers, no more than 20 percent of the global workforce.” 

• The share of immigrants has been quite stable at about 3 percent of the world population since 1960. The World Bank’s Caglar Ozden offers an excellent reminder of the benefits of immigration to society. He contrasts this with the fact that, despite the perception, immigration has remained stable. The result is wage differentials for fairly similar work: “Nurses make seven times more in Australia than in the Philippines; accountants six times more in the United Kingdom than in Sri Lanka; and doctors five times more in the United States than in Egypt—in purchasing power parity terms”.

Near-term outlook:

• The global unemployment rate has returned to its pre-crisis level of 5.6%. But employment growth remains sluggish—about 1.5 percent a year instead of over 2 percent a year before the crisis. See “Picture This” and my article “Seven Lean Years” for details on the global labor market outlook. The labor market outlook for Europe remains dismal. 

• “Without strong growth, it will be difficult to make a sizable dent in (European youth) unemployment.” My colleague Angana Banerji shows that “changes in economic activity explain on average about 50 percent of the increase in youth unemployment; in the case of Spain, poor growth accounts for 90 percent of the increase in the youth unemployment rate during the crisis. Also read the poignant stories of four young people from Bosnia, Egypt, Japan, and the United States.

• Sharan Burrow, General Secretary of the ITUC: “It is time to get the global agenda back on track, making job creation the foremost priority. Another six years of global employment stagnation, accompanied by outright depression in some countries, is unacceptable.”