The Unassuming Economist

From Stumbling and Mumbling:

“I welcome the Deaton report into inequality. I especially like its emphasis (pdf)upon the causes of inequality:

To understand whether inequality is a problem, we need to understand the sources of inequality, views of what is fair and the implications of inequality as well as the levels of inequality. Are present levels of inequalities due to well-deserved rewards or to unfair bargaining power, regulatory failure or political capture?

I fear, however, that there might be something missing here – the impact that inequality has upon economic performance.

My chart shows the point. It shows the 20-year annualized rate of growth in GDP per worker-hour. It’s clear that this was much stronger during the relatively egalitarian period from 1945 to the mid-70s than it was before or since, when inequality was higher.

This might, of course, be coincidence: maybe WWII caused both a backlog of investment and innovation which allowed a subsequent growth spurt and a desire for greater equality.

Or it might not. This is not the only evidence for the possibility that inequality is bad for growth. Roland Benabou gave the example (pdf) of how egalitarian South Korea has done much better than the unequal Philippines. And IMF researchers have found (pdf) a “strong negative relation” between inequality and the rate and duration of subsequent growth spells across 153 countries between 1960 and 2010.”

 

From a new paper on robot adoption in China

“China is the world’s largest user of industrial robots. In 2016, sales of industrial robots in China reached 87,000 units, accounting for around 30 percent of the global market. To put this number in perspective, robot sales in all of Europe and the Americas in 2016 reached 97,300 units (according to data from the International Federation of Robotics). Between 2005 and 2016, the operational stock of industrial robots in China increased at an annual average rate of 38 percent. In this paper, we describe the adoption of robots by China’s manufacturers using both aggregate industry-level and firm-level data, and we provide possible explanations from both the supply and demand sides for why robot use has risen so quickly in China. A key contribution of this paper is that we have collected some of the world’s first data on firms’ robot adoption behaviors with our China Employer-Employee Survey (CEES), which contains the first firm-level data that is representative of the entire Chinese manufacturing sector.”

From Conversable Economist:

“For economists, the idea of “spending” time isn’t a metaphor. You can spend any resource, not just money. Among all the inequalities in our world, it remains true that every person is allocated precisely the same 24 hours in each day. In “Escaping the Rat Race: Why We Are Always Running Out of Time,” the Knowledge@Wharton website interviews Daniel Hamermesh, focusing on themes from his just-published book Spending Time: The Most Valuable Resource.

The introductory material at the start quotes William Penn, who apparently once said, “Time is what we want most, but what we use worst.” Here are some comments from Hamermesh:

Time for the Rich, Time for the Poor

The rich, of course, work more than the others. They should. There’s a bigger incentive to work more. But even if they don’t work, they use their time differently. A rich person does much less TV watching — over an hour less a day than a poor person. They sleep less. They do more museum-going, more theater. Anything that takes money, the rich will do more of. Things that take a lot of time and little money, the rich do less of. …

I think complaining is the American national pastime, not baseball. But the thing is, those who are complaining about the time as being scarce are the rich. People who are poor complain about not having enough money. I’m sympathetic to that. They’re stuck. The rich — if you want to stop complaining, give up some money. Don’t work so hard. Walk to work. Sleep more. Take it easy. I have no sympathy for people who say they’re too rushed for time. It’s their own darn fault.

Time Spent Working Across Countries

Americans are the champions of work among rich countries. We work on average eight hours more per week in a typical week than Germans do, six hours more than the French do. It used to be quite a bit different. Forty years ago, we worked about average for rich countries. Today, even the Japanese work less than we do. The reason is very simple: We take very short vacations, if we take any. Other countries get four, five, six weeks. That’s the major difference. …

What’s most interesting about when we work is you compare America to western European countries, and it’s hard to find a shop open on a Sunday in western Europe. Here, we’re open all the time. Americans work more at night than anybody else. It’s not just that we work more; we also work a lot more at night, a lot more in the evenings, and a heck of a lot more on Sundays and Saturdays than people in other rich countries. We’re working all the time and more. …

It’s a rat race. If I don’t work on a Sunday and other people do, I’m not going to get ahead. Therefore, I have no incentive to get off that gerbil tube, get out of it and try to behave in a more rational way. …  The only way it’s going to be solved is if somehow some external force, which in the U.S. and other rich countries is the government, imposes a mandate that forces us to behave differently. No individual can do it. …

We have to force ourselves, as a collective, as a polity, to change our behavior. Pass legislation to do it. Every other rich country did that between 1979 and 2000. We think the Japanese are workaholics. They’re not workaholics. Compared to us, they work less than we do, yet 40 years ago they worked a heck of a lot more. They chose to cut back. ,.. It’s going to be a heck of a lot of trouble to change the rules so that people are mandated to take four weeks of vacation or to take a few more paid holidays. Other countries have done it. It didn’t just happen from the day the countries were born. They chose to do it. It’s a political issue, like the most important things in life. “

Continue reading here.

From VoxEU post by Sergi Basco and Martí Mestieri:

“Trade in intermediates (or ‘unbundling of production’) and trade in capital have become increasingly important in last 25 years. This column shows that trade in intermediates generates a reallocation of capital across countries that exacerbates world inequality in both income and welfare. Unbundling of production hurts middle-income countries but helps those with high productivity. Trade in intermediates also increases within-country inequality, and this increase is U-shaped in the aggregate productivity level of the country.

Two remarkable facts of the globalisation process witnessed in the last 25 years are the large increases in both trade in intermediate goods and in capital mobility. Before the 1990s, trade in final goods accounted for most of the value of world exports and international capital mobility was relatively low. In contrast, after the 1990s, trade in intermediate goods, or ‘unbundling of production’, has become more prominent over time (see Figure 1) and global supply chains have emerged – a phenomenon termed ‘New Globalisation’ by Baldwin (2016). There has also been a sizable growth of both gross and net international capital flows (e.g. Lane and Milesi-Ferretti 2007). Some authors have blamed globalisation for the increasing inequality and loss of jobs in developed countries (e.g. Acemoglu et al. 2016). However, there has not been any theoretical analysis of the long-run effect of unbundling of production on inequality between and within countries.

 

Figure 1 International unbundling of production

 

A distinctive feature of intermediate goods, which we document in a recent paper (Basco and Mestieri 2019a), is that they are more heterogenous in capital intensity than final goods. Factor proportion (Heckscher-Ohlin) trade models emphasise that trade in goods which are heterogenous in capital intensity creates winners and losers from globalisation because trade alters the relative return to factors of production. Moreover, since capital can be accumulated, trade in intermediates can have dynamic effects through altering countries’ savings rate. In addition, capital mobility implies that trade in intermediates can affect the global allocation of capital. Changes in the global allocation of capital also affect returns to other domestic factors of production (e.g. labour), to the extent that capital and labour are complements in production. In sum, trade in intermediates (unbundling of production) has the potential to affect the redistribution of capital and labour between and within countries.”

Continue reading here.

From Conversable Economist:

“There’s a well-worn conversation about the relationship between new technology and possible job displacement which goes something like this:

Concerned person: “New developments in information technology and artificial intelligence are going to threaten lots of jobs.”

Skeptical person: “Economies in developed countries have been experiencing extraordinary developments and shifts in new technology for literally a couple of centuries. But as old jobs have been dislocated, new jobs have been created.”

Concerned person: “This time seems different.”

Skeptical person: “Every time is different in the specific details. But there’s certainly no downward pattern in the number of jobs in the last two centuries, or the last few decades.”

Concerned person: “Still, the way in which information technology and artificial intelligence replace workers seems different than the way in which, say, assembly lines replaced skilled artisan workers or combine harvesters replaced farm workers. ”

Skeptical person: “Maybe this time will be different. After all, it’s logically impossible to prove that something in the future will NOT be different. But based on the long-run historical pattern, the evidence that new technology leads to shifts in the labor market is clear-cut, while the evidence that it leads to permanent job loss for the population as a whole is nonexistent.”

Concerned person: “Still, this current wave of technology seems different.”

Skeptical person: “I guess we’ll see how it unfolds in the next decade or two.”

The most recent Spring 2019 issue of the Journal of Economic Perspectives has a symposium on “Automation and Employment.” Two of the articles in particular offer a concrete arguments about how something is different with how the current new technologies are interacting with labor markets.

Daron Acemoglu and Pascual Restrepo discuss “Automation and New Tasks: How Technology Displaces and Reinstates Labor.” They suggest a framework in which automation can have three possible effects on the tasks that are involved in doing a job: a displacement effect, when automation replaces a task previously done by a worker; a productivity effect in which the higher productivity from automation taking over certain tasks leads to more buying power in the economy, creating jobs in other sectors; and a reinstatement effect, when new technology reshuffles the production process in a way that leads to new tasks that will be done by labor.”