The Unassuming Economist

A new IMF country report says that “Saudi Arabia’s labor market is characterized by a persistently high unemployment rate, low private employment ratio, and a low labor participation rate for nationals. The authorities are undertaking a wide range of labor market interventions to address these issues. The analysis in this paper shows that these interventions are helping to reduce distortions in the labor market, including by boosting female labor force participation and reducing the wage gap between expatriates and nationals in the private sector, but the impact on the rest of the economy is not always positive as firms adjust to the higher cost of labor. Reforms should therefore be gradual to minimize their impact on growth. A comprehensive set of policies is also needed to foster job creation for nationals. Measures should include policies toward levelling the playing field between national and expatriate workers so that employers have less of a preference for employing expatriates, setting clear expectations about the limited prospects for public sector employment, boosting female labor force participation, and strengthening education and training to support increased productivity of nationals.”

A new IMF working paper by Gabriele Ciminelli, Romain Duval, and Davide Furceri investigates “the impact of job protection deregulation in a sample of 26 advanced economies over the period 1970-2015, using a newly constructed dataset of major reforms to employment protection legislation for regular contracts” and finds “a statistically significant, economically large and robust negative effect of deregulation on the labor share. In particular, illustrative back-of-the-envelope calculations suggest that job protection deregulation may have contributed about 15 percent to the average labor share decline in advanced economies. Together with existing evidence regarding the macroeconomic gains from job protection and other labor market reforms, [these] results also point to the need for policymakers to address efficiency-equity trade-offs when designing such reforms.”

A new VOX post “uses new ‘distributional national accounts’ data to show that the Middle East is in fact the most unequal region in the world, with both enormous inequality between countries and large inequality within countries. The results emphasise the need to develop mechanisms of regional redistribution and to increase transparency on income and wealth data.”

“According to our benchmark estimates, the share of total income accruing to the top 10% of income earners is about 64% in the Middle East, which compares with 37% in Western Europe, 47% in the US, 55% in Brazil, and 62% in South Africa – the two latter countries being often characterised as the most unequal in the world (see Figure 1).”

Continue reading here.

A new IMF working paper surveys evidence “on main channels of corporate tax avoidance including transfer mispricing, international debt shifting, treaty shopping, tax deferral and corporate inversions.” and finds that “the literature suggests that, for the most recent year, a 1 percentage-point lower corporate tax rate compared to other countries will expand before-tax income by 1.5 percent—an effect that is larger than reported as the consensus estimate in previous surveys and tends to be increasing over time. The literature on tax avoidance still has several unresolved puzzles and blind spots that require further research.”

From a new IMF working paper:

“We provide a systematic analysis of the properties of individual returns to wealth using twelve years of
population data from Norway’s administrative tax records. We document a number of novel results.
First, during our sample period individuals earn markedly different average returns on their financial
assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second,
heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe
and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively
correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution
increases the return by 3 percentage points – and by 17 percentage points when the same exercise is
performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time.
We argue that while this persistence partly reflects stable differences in risk exposure and assets scale,
it also reflects persistent heterogeneity in sophistication and financial information, as well as
entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the
implications of these findings for several strands of the wealth inequality debate.”