The Unassuming Economist

From a new paper on China’s labor market:

“A stable labor market is a policy priority for most countries, especially after the burst of the global financial crisis. Unlike most countries, the labor market in China appears to be holding up well, despite sharp slowdown in economic growth. This paper argues that there are underlying fundamental mechanisms that help explain the resilience of China’s labor market. The key to understanding labor market dynamics in China is that rural-to-urban migrant flows are more sensitive to growth than urban workers in the process of fast urbanization, which serves as a main shock absorber to buffer employment against adverse shocks. Therefore, we propose a generalized Okun’s Law (GOL) that incorporates migrant flows with unemployment rates to capture the relation between labor market dynamics and economic cycles. The original Okun’s Law can be regarded as a special case of the GOL for developed countries that have already completed urbanization. Conducting empirical analysis with both China’s national- and city-level data and cross-country panel data, we find strong evidence supporting the GOL theory. Findings in the paper have implications for a deeper understanding of the wisdom of Okun’s Law and its application in labor market policies.”

The latest IMF report on Malaysia says the “Malaysia’s economy and its labor market have undergone significant shifts in the last three decades. The labor market is now more urban and has a higher share of female workers and workers with tertiary education. Employment has kept pace with labor supply, keeping the unemployment rate stable for more than a decade. Meanwhile, reliance on non–citizen workers has also increased against the backdrop of slower growth in citizen population. Continuing with its economic transformation, Malaysia aspires to achieve high–income status, with a labor market that is ready for the economy of the future: a market that can support more female workers, more skilled jobs, and a higher labor productivity growth.”

The latest IMF country report finds that “Gender inequality in Nigeria is high and widespread across areas of economic opportunities (enforcement of legal rights; access to education, health, financial services) and outcomes (labor force participation, entrepreneurship, political representation, income). These inequalities have led to substantial macroeconomic losses in terms of growth, income equality, and economic diversification. Nigeria’s real GDP per capita growth could, on average, be higher by 1¼ percentage points annually if gender inequality was reduced to that of peers in the region. Addressing challenges in health and education, such as by providing necessary infrastructure (sanitation facilities and electricity), equalizing legal rights, and combatting violence against women and girls, will be essential for Nigeria to reap the demographic dividend from its young and rapidly growing population.”

The latest IMF country report on Nigeria finds that “Income inequality and poverty rates are high in Nigeria, with the latter having declined more slowly compared to other countries. At the same time, moving closer to achieving the sustainable development goals and addressing Nigeria’s large development needs will require additional financing. This chapter finds that reforms to generate fiscal space—increases in value-added tax collection, excises, and electricity tariffs—are progressive, i.e. they reduce income inequality. However, they increase poverty gaps and rates to varying extents. Scaling up social safety net transfers and expanding their scope to cover a wider share of the poor can, to some extent, compensate for these adverse impacts at relatively low cost, and bring down poverty rates more generally. In the short term, other measures to shield vulnerable households’ income, including through lifeline electricity tariffs, and higher spending on health and education are needed.”

My new paper with Sangyup Choi and Davide Furceri has been featured the Central Banking:

“A working paper published by the International Monetary Fund has concluded anchoring inflation expectations – rather than the level of inflation – is what has a statistical effect on growth.

In their paper, Sangyup Choi, Davide Furceri, and Prakash Loungani explore whether low inflation and the anchoring of inflation expectations are positive for economic growth, as central bankers often assert.

While they find inflation anchoring fosters growth in industries that are more credit-constrained, the authors also attempt to “disentangle” the effect of inflation anchoring from the effect of the level of inflation.

Using data on sectoral growth for 36 advanced and emerging market economies from 1990–2014, the authors “explicitly” control for interactions between “the level of inflation and industry-specific measures of credit constraints”.

“While these two channels tend to be correlated, since low inflation is often achieved by better inflation anchoring … the results of the analysis suggest that it is inflation anchoring and not the level of inflation per se that has a statistical effect on growth,” they say.”