The Unassuming Economist

A new IMF reports finds that “China has grown rapidly and is on the brink of eradicating poverty. However, income inequality increased sharply from the early 1980s. While less equality is to be expected in the transition from central planning to a market-based economy, China is now among the most unequal countries in the world, despite a recent modest improvement.

Inequality has been driven by structural factors (especially demographics, the urban/rural divide and education/skills), with little offset from fiscal policies. These structural factors are likely to drive inequality higher.

This calls for more proactive use of fiscal policies to reduce inequality. On the revenue side: (1) increasing the progressivity of social security contributions and of personal and property taxes. On the spending side: (2) boosting social spending and promoting equal access across provinces and regardless of residency.”

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A new IMF report finds that “Societal attitudes in which males contribute to household work could be a powerful lever both to increase female labor force participation, and increase fertility. If women can get more child rearing support from their husbands, it would be easier for them to continue to work. However, with 85 percent of full-time employees working overtime, it is difficult in reality to share the childcare burdens among a working couple if both of them have regular works. Men’s commitment to house work and family responsibilities can have a significant impact on fertility. Data suggests that the more time spent by a husband in house work and childcare, the higher the changes that couples will have a second child.”

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“With the economy at full employment, the United States will need to gradually remove both fiscal and monetary support, while intensifying efforts to address multiple constraints on its medium-term growth prospects, ” a new IMF report says that “These constraints include weak productivity growth, an aging population, falling labor force participation, an increasingly polarized income distribution, and high levels of poverty. These growing headwinds are made worse by a share of income paid to workers that is nearly 4 percentage points lower than that in the early 2000s, a middle class that has shrunk to its smallest size over the past 30 years, and a potential growth rate that is virtually the lowest since the 1940s.” It also offers the following solutions:

“1. Getting the economic policy mix right.

2. Reforming the tax system.

3. Improving infrastructure.

4. Revitalizing trade.

5. Supporting low- and middle-income households.

6. Adopting a skills-based immigration reform.

7. Protecting the financial sector.

8. Simplifying federal regulations.

9. Strengthening healthcare coverage.

10. Minimizing the unintended consequences of technology and import penetration.”

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From a new IMF report:

“Income inequality has increased in several euro area countries over the last few decades. We explore whether the relationship between income inequality and growth depends on equality of opportunity. This question is critical in the euro area where several countries exhibit higher levels of inequality of opportunities. Our econometric results confirm a robust negative effect of widening income disparities on growth in presence of high inequality of opportunity. Reducing income inequality can therefore accelerate growth in the euro area. Over the long-run, addressing the root causes of inequality of opportunity can make growth less sensitive to shifts in income distribution.”

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From a new IMF Working Paper:

“The U.S. labor share of income has been on a secular downward trajectory since the beginning of the new millennium. Using data that are disaggregated across both state and industry, we show the decline in the labor share is broad-based but the extent of the fall varies greatly. Exploiting a new data set on the task characteristics of occupations, the U.S. input-output tables, and the Current Population Survey, we find that in addition to changes in labor institutions, technological change and different forms of trade integration lowered the labor share. In particular, the fall was largest, on average, in industries that saw: a high initial intensity of “routinizable” occupations; steep declines in unionization; a high level of competition from imports; and a high intensity of foreign input usage. Quantitatively, we find that the bulk of the effect comes from changes in technology that are linked to the automation of routine tasks, followed by trade globalization.”

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