The Unassuming Economist

From a new article by Jessie Romero and Felipe F. Schwartzman at the Richmond Fed:

“Inequality in the United States has an important spatial component. More-skilled workers tend to live in larger cities where they earn higher wages. Less-skilled workers make lower wages and do not experience similar gains even when they live in those cities. This dynamic implies that larger cities are also more unequal. These relationships appear to have become more pronounced as inequality has increased. The evidence points to externalities among high-skilled workers as a significant contributor to those patterns.”

“A large body of research has identified several key facts about inequality across and within cities. First, larger cities have a greater concentration of high-skilled workers. In the Fifth District, for example, the share of the population over age twenty-five with a bachelor’s degree is 45 percent in the most urban areas, compared with 16 percent in the most rural areas. In the United States as a whole, the proportion ranges from 35 percent in the most urban areas to 17 percent in the most rural areas.”

“Second, nominal wages are higher in larger cities and in cities with a larger proportion of high-skilled workers. In the most urban areas of the Fifth District, average annual pay in 2016 was nearly $64,000; in the most rural areas, it was less than $35,000. Nationwide, workers in the most urban areas earned about $60,000 on average in 2016, while workers in the most rural areas earned about $36,000. (See Figure 2 above.) In recent research, Nathaniel Baum-Snow, Matthew Freedman, and Ronni Pavan find that nominal wages increase 0.065 percent for every percentage point increase in city size (based on data from 2005–07). They also find that the relationship between city size and wages has strengthened over time and that the wage gap between urban and rural areas has increased”

From a new IMF Staff Discussion Note:

“Opportunities and challenges. Women are underrepresented in science, technology, engineering, and mathematics (STEM) sectors anticipating jobs growth, where technological change can be complementary to human skills. There are some bright spots: job growth in traditionally female-dominated sectors, such as education and health services, will likely expand. The ongoing digital transformation is also likely to confer greater flexibility in work, benefitting women. But, breaking the “glass-ceiling” will be critical. Across sectors and occupations, underrepresentation of women in professional and managerial positions places them at high risk of displacement by technology.

Crucial role for policy. Fostering gender equality and gender empowerment in the changing landscape of work remains an imperative across countries.

• Endowing women with the requisite skills. Early investment in women in STEM fields, along with peer mentoring, can help break down gender stereotypes and increase retention. Fiscal instruments for those already in the workforce (e.g., tax deductions for training, portable individual learning accounts) can remove barriers to lifelong learning.
• Closing gender gaps in leadership positions. Family-friendly policies can play an important role in boosting women’s retention and career progression, but setting relevant recruitment and retention targets for organizations, promotion quotas, as well as mentorship and training programs to promote female talent into managerial positions should be considered.
• Bridging the digital divide. When it comes to the use of new technologies and access to them, countries must close gender gaps to improve women’s labor market prospects in the new world of work. Governments have a role to play through public investment in capital infrastructure and ensuring equal access to finance and connectivity.
• Easing transitions for workers. Ensuring gender equality in support for displaced workers through active labor market policies will be essential, given the high risk of automation faced by women. Ensuring that training and benefits are linked to individuals rather than jobs can help improve their reemployment prospects. Social protection systems will need to adapt to the new forms of work.”

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. ”