The Unassuming Economist

From a new IMF Staff Discussion Note:

“While progress has been made in increasing female labor force participation (FLFP) in the past 20 years, the pace has been uneven, and large gaps remain. FLFP was 54 percent for the median Organisation for Economic Co-operation and Development (OECD) country in 2014, 14 percentage points below male labor force participation (MLFP); for the median middle-income country, FLFP was only 49 percent, 26 percentage points below MLFP; and for the median low-income country, FLFP was 64 percent, 13 points below MLFP.

Narrowing participation gaps between women and men is likely to engender large economic gains, with two mechanisms pointing to larger gains than previously thought:

• Gender diversity: Women bring new skills to the workplace. This may reflect social norms and their impact on upbringing, social interactions, as well as differences in risk preference and response to incentives, for example. As such, there is an economic benefit from diversity—that is, from bringing women into the labor force—over and above the benefit resulting from simply having more workers. This hypothesis finds support in the data—both cross-country macro data and firm-level data. This paper finds that male and female labor are complementary in production. The results also imply that standard models, which do not differentiate between genders in their analysis, understate the favorable impact of gender inclusion on growth, and misattribute to technology a part of growth that is actually caused by women’s participation. The results further suggest that narrowing gender gaps benefits both men and women, because of a boost to male wages from higher FLFP.
• Sectoral reallocation: As households get richer during the process of economic development, demand for services rises, and labor is reallocated to the growing sector. Because services are more gender equal in employment than other sectors, developing economies naturally become more inclusive. But barriers to FLFP (which include tax distortions, discrimination, and social/cultural factors) slow this process, reducing output and welfare. This paper estimates that these barriers can depress FLFP by as much as a tax of up to 50 percent on female labor, depending on the region. Barriers not only hold back gender parity, they have a direct cost: welfare gains from their removal would exceed 20 percent in India, Pakistan and other countries in the Middle East and North Africa, for example.

These mechanisms imply that reducing female underemployment should yield greater gains than an equivalent increase in male employment: gender diversity brings benefits all its own.”

From a new VOX post:

“Rising income and wealth inequality have come into sharp focus since the Global Crisis. Using US and European data, this column explores the factors contributing to unfair inequality, focusing on equality of opportunity and freedom from poverty. The results show that unfair inequality is greater in the US than anywhere in Europe, and that it has been increasing over time. The findings also show that relying solely on measures of equality of opportunity will severely underestimate unfair inequality.”

“How much of the unfairness of inequality can be attributed to its two components – equality of opportunity and freedom from poverty? We cannot cleanly allocate all unfair inequality to either freedom from poverty or equality of opportunity, since they are partly overlapping. But we can derive upper and lower bounds (technical details are provided in Hufe et al. 2018). As documented in Figures 3 and 4, our baseline results are driven by equality of opportunity and freedom from poverty in about equal proportions. But, what this does suggest is that relying solely on equality of opportunity as a gauge will grossly understate the degree of unfairness in a society.”

From a new paper by Francesco Saraceno:

“The New Consensus that has dominated macroeconomics since the 1980s was based on a fundamentally neoclassical structure: efficient markets that on their own converged on a natural equilibrium with a very limited role for macroeconomic (mostly monetary) policy to smooth fluctuations. The crisis shattered this consensus and saw the return of monetary and fiscal activism, at least in academic debate. The profession is reconsidering the pillars of the Consensus, from the size of the multipliers to the implementation of reform, including the links between business cycles and trends. It is still too soon to know what macroeconomics will look like tomorrow, but hopefully it will be more eclectic and open. ”

A new IMF working paper “uses a DSGE model to simulate the impact of technological change on labor markets and income distribution. It finds that technological advances offers prospects for stronger productivity and growth, but brings risks of increased income polarization. This calls for inclusive policies tailored to country-specific circumstances and preferences, such as investment in human capital to facilitate retooling of low-skilled workers so that they can partake in the gains of technological change, and redistributive policies (such as differentiated income tax cuts) to help reallocate gains. Policies are also needed to facilitate the process of adjustment.”

“Policies can change the impact of technological change. Depending on societies’ preferences for growth versus income equality, governments may want to distribute the gains from technology more evenly. Certain policies, if well designed, could mitigate the trade-off between both objectives. For example, illustrative model simulations show that higher education spending would not only allow low-skilled workers to participate in the gains of technological change, it would also increase output; this holds even when taking into account that higher spending will require higher rates of taxation. More generally, while the use of the tax/benefit system to redistribute the gains from technological advances tends to come with some loss in efficiency, the resulting loss in output tends to be relatively small.”

From a new VOX post:

“The most widely available measure of underemployment is the share of involuntary part-time workers in total employment. This column argues that this does not fully capture the extent of worker dissatisfaction with currently contracted hours. An underemployment index measuring how many extra or fewer hours individuals would like to work suggests that the US and the UK are a long way from full employment, and that policymakers should not be focused on the unemployment rate in the years after a recession, but rather on the underemployment rate. ”

“Figure 2 shows our estimates for the UK of the number of desired hours of those who want more hours (the underemployed) and those who want less (the overemployed) at the going wage.  The latter series was broadly flat until recently but was always above the fewer hours series before 2008.  That suggests there is still a good deal of under-utilized resources in the labour market available to be used up before the UK reaches full-employment.  There has been a rise both in the number of hours of those who want more hours and those who want less in the post-recession years. ”