The Unassuming Economist

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.”

A new report by Lawrence Mishel says that “Uber, and gig work more broadly, [does not] represent the future of work.” “Uber drivers earn low wages and compensation and the total hours and compensation in the gig economy represent a very small share of total hours and compensation in the overall economy. These findings—and the fact that many Uber and other workers who provide personal services via a digital platform do so on a part-time basis primarily as a way to earn supplementary income—argue for a change in perspective. There has been much hype around Uber and the gig economy. But in our assessment, in any conference on the future of work, Uber and the gig economy deserve at most a workshop, not a plenary.”