The Unassuming Economist

From a new World Bank working paper:

“Most manufacturing activities use inputs from the financial and business services sectors. But these services sectors also compete for resources with manufacturing activities, provoking concerns about de-industrialization—inancial services in industrial countries like the United States and the United Kingdom, and business services in developing countries like India and the Philippines. This paper examines the implications of services development for the export performance of manufacturing sectors. It develops a methodology to quantify the indirect role of services in international trade in goods and constructs new measures of revealed comparative advantage based on domestic value added in gross exports. The paper shows that the development of financial and business services enhances the revealed comparative advantage of manufacturing sectors that use these services intensively but not that of other manufacturing sectors. It also finds that a country can partially overcome the handicap of an underdeveloped domestic services sector by relying more on imported services inputs. Thus, lower services trade barriers in developing countries can help to promote their manufacturing exports.”

A new VOXEU post by Paul Schmelzing says that “Trends over recent decades are generally in line with a long-term ‘suprasecular’ trend of declining real rates.”

“[…] even if cyclical forces could now stabilise nominal Treasury rates beyond 3%, central bankers may find that before they have fully returned to normalised balance sheets, ‘suprasecular’ real rate trends will have caught up to them once more. Negative real rates could become a more frequent phenomenon, and indeed constitute a ‘new normal’. Absent geopolitical or natural disaster shocks – which in the past at least temporarily ‘broke’ the trend – unconventional monetary tools may (under this scenario) mature into more permanent features of the international financial system.”

The IMF’s latest report on Netherlands says:

“Besides various cyclical factors, rising labor market flexibility may have contributed to the wage moderation in the Netherlands. Like other advanced economies, slower productivity growth and lower expected inflation are important drivers to the wage moderation in the recent years. In addition to that, remaining slack in the labor market also weighed on wage growth. Like many other EA or EU countries, foreign wage growth has been showing strong spillovers to domestic wage development, especially for small open economies with strong trade exposures that strive to safeguard competitiveness. But more specifically to the Netherlands, rising labor market duality/flexibility with higher share of temporary and self-employed workers, may have also contributed to stagnant wage growth. Reforms to harmonize labor market employment contracts in a manner that increases flexibility but also allows greater bargaining power for the more “flexible” employees might allow both greater flexibility and higher wages.”

From a new IMF working paper by Andrew Berg, Edward Buffie, and Luis-Felipe Zanna:

“Advances in artificial intelligence and robotics may be leading to a new industrial revolution. This paper presents a model with the minimum necessary features to analyze the implications for inequality and output. Two assumptions are key: “robot” capital is distinct from traditional capital in its degree of substitutability with human labor; and only capitalists and skilled workers save. We analyze a range of variants that reflect widely different views of how automation may transform the labor market. Our main results are surprisingly robust: automation is good for growth and bad for equality; in the benchmark model real wages fall in the short run and eventually rise, but “eventually” can easily take generations.”

“Figure 3 plots the transition paths [when robots and labor are perfect vs. imperfect substitutes, when all other parameters take their base case bales.] Perfect substitution of robot for human labor delivers perpetual growth. But the rich become richer and the poor poorer with every passing year. In the long run, the real wage decreases 13.4% while capitalists’ income rises without limit.”

A new IMF working paper “explores regional differences to shed light on drivers of participation rates at the state and metropolitan area levels. It documents a broad-based decline, especially pronounced outside metropolitan areas. Using novel measures of local vulnerability to trade and technology it finds that metropolitan areas with higher exposures to routinization and offshoring experienced larger drops in participation in 2000-2016. Thus, areas with different occupational mixes can experience divergent labor market trajectories as a result of trade and technology.”