The Unassuming Economist

From a new Social Europe post:

IMF Rediscovers “Political Economy”

“This summer, the IMF challenged yet another pillar of neoliberal thinking when it published its Working Paper on the negative impact of deregulating job protection on the labour income share. Whereas the economic mainstream has systematically argued that technological progress is the main reason for the global trend of falling labour share (see OECD chapter 2 and IMF), this new paper finds a strong link with the policies of weakening job protection that have been pursued over previous decades.

By introducing the element of bargaining power between labour and capital into this discussion, the IMF thus provides for an important broadening of the policy discussion going beyond the standard recommendations to invest more in education and training: “This paper contends that, alongside these (non-mutually exclusive) drivers, changes in institutions that weakened worker bargaining power have also played a role”. It seems that the IMF, which usually adheres to the neoclassical economic argument that wages in the absence of rigidities are completely driven by marginal productivity and technological developments, has rediscovered the political economy thinking of classical economists such as Karl Marx and Adam Smith.”

Displaced Workers: A More Balanced OECD View On Advance Notification

“Another interesting piece of research is the OECD’s work on nine country cases that examine how to get displaced workers back to work (job displacement is defined as permanent economic dismissal affecting workers with at least one year of tenure). Here, one remarkable policy message running throughout the OECD research (chapter 4) is the importance of adequate job protection in the form of advance notification.

Here, its starting point is that early intervention and starting the process of adjustment beforeworkers become unemployed has many advantages. One is that the ‘hysteresis’ effect under which labour market prospects decline the longer a worker is unemployed can be averted. This is because, on the employers’ side, prospective employers tend to view job applicants who are still at work more favourably than those who are already unemployed. And, on the side of the workers, intervening early when workers are still in a job serves to limit long unemployment spells during which skills and work-related attitudes could deteriorate.”

Continue reading the IMF working paper here.

From a new post by Francis Diebold:

“I just returned from a great BFI Conference at U Chicago, Developing and Using Business Expectations Data, organized by Nick Bloom and Steve Davis.

Wonderfully, density as opposed to point survey forecasts were featured throughout. There was the latest on central bank surveys (e.g., Binder et al.), but most informative (to me) was the emphasis on surveys that I’m less familiar with, typically soliciting density expectations from hundreds or thousands of C-suite types at major firms. Examples include Germany’s important IFO survey (e.g.,Bachman et al.), the U.S. Census Management and Organizational Practices Survey (e.g., Bloom et al.)., and fascinating work in progress at FRB Atlanta.

The Census survey is especially interesting due to its innovative structuring of histogram bins. There are no fixed bins. Instead users give 5 bins of their own choice, and five corresponding probabilities (which add to 1). This solves the problem in fixed-bin surveys of  (lazy? behaviorally-biased?) respondents routinely and repeatedly assigning 0 probability to subsequently-realized events.”

From a new post by Timothy Taylor:

“Writing back in 1973, Hirschman offers examples of “development disasters,” in which those stuck in the left lane have come to strongly suspect that economic development will not benefit them, and thus a high degree of social unrest emerges. and he cites Nigeria, Pakistan, Brazil and Mexico as facing these issues in various ways.

I find myself thinking about the tunnel effect and expectations about future social mobility in the current context of the United States. Rising economic inequality in the United States goes back to the 1970s, and the single biggest jump in inequality at the very top of the income distribution happened in the 1990s when stock options and executive compensation took off. But my unscientific sense is that at that time, during the dot-com boom of the 1990s, many people who were either pleased, or not that unhappy, with the rise in inequality of that time. There seemed to be new economic opportunities opening up, new businesses were starting, unemployment rates were low, cool new products and services were becoming available. Even if you were for the time stuck in the left lane, all that movement in the right lane seemed to offer opportunities.

But that optimistic view of high and rising inequality came apart in the 2000s, under pressure from a from a number of factors: the sharp rise in imports from China in the early 2000s that hit a number of local areas so hard; the rise of the opioid epidemic, with its dramatically rising death toll exceeding 40,000 in 2016; and the carnage in employment and housing markets in the aftermath of the Great Recession.  In Hirschman’s words, it seems to me that many politicians were “lulled into complacency by the easy early stage when everybody seems to be enjoying the very process that will later be vehemently denounced and damned as one consisting essentially in `the rich becoming richer.'”

Of course, no country is really one big tunnel. When people look at high or rising inequality, their views will often depend on the extent to which they feel some commonality–Hirschman calls it “shared historical experience”–with those who are moving ahead more briskly. In turn, this feeling may depend on the extent to which those who are moving ahead more briskly segment themselves off as a special and separate guild, with an implicit claim that they are just more worthy, or the extent to which they act in ways that embody broader and more inclusive outcomes.”

From a new VOX post:

“As countries such as the US face increasingly ageing populations, policymakers face the question of whether to encourage workers to work beyond historical retirement age. Using strategic survey questions, this column gauges whether older Americans stop working due to their lack of interest in working longer or due to lack of opportunity, and finds that it may be the latter. The revealed strong willingness to work implies that job opportunities with flexible schedules are hard for older Americans to find. ”

“The survey responses reveal a strong willingness to work among older Americans who are currently not working. Even when the hypothetical job opportunity requires them to work exactly the same number of hours as in their previously-held reference job, about 40% of the VRI sample that are current not working report that they would accept the offer (Figure 1, blue bars). The acceptance rate is slightly higher for those who had a bridge job after leaving the career job.⁴ Some of them are even willing to accept a significant wage reduction to go back to work. More than 20% of non-workers are willing to take a 10% reduction in wages and more than 10% are willing to take 20% reduction in wages.”

“Motivated by the recent evidence that part-time options are relatively more common among post-career bridge jobs (Maestas 2010, Rupert and Zanella 2015, and Ramnath et al. 2017), the strategic survey questions also included a scenario where the job opportunity allows respondents to choose the number of hours worked. The survey responses reveal strong preferences for a flexible work schedule among older Americans. The acceptance rate for the hypothetical job opportunity is substantially higher under a flexible work schedule than a fixed work schedule (yellow bars in Figure 1 indicate the increases in the acceptance rate in the flexible schedule compared to the fixed schedule). Perhaps the most striking finding, more than half of the current non-workers would be willing to work again if they could choose the number of hours worked and earned the same hourly wage as in their most recent job. About 40% of them would be willing to take a 10% reduction in hourly wage, and about 20% would be willing to take a 20% reduction in hourly wage, to work under a flexible schedule if other conditions were similar to their most recent job. “

From a new post by Francis Diebold:

“As the expansion ages, there’s progressively more discussion of whether its advanced age makes it more likely to end. The answer is no. More formally, postwar U.S. expansion hazards are basically flat, in contrast to contraction hazards, which are sharply increasing. Of course the present expansion will eventually end, and it may even end soon, but its age it unrelated to its probability of ending.

All of this is very clear in Diebold, Rudebusch and Sichel (1992). See Figure 6.2 on p. 271. (Sorry for the poor photocopy quality.) ”

“The flat expansion hazard result has held up well (e.g., Rudebusch (2016)), and moreover it would only be strengthened by the current long expansion.”