The Unassuming Economist

There is a widespread perception that trust and social capital have declined in United States as well as other advanced economies, while income inequality has tended to increase. While previous research has noted that measured trust declines as individuals become less similar to one another, this paper examines whether the downward trend in social capital is responding to the increasing gaps in income. The analysis uses data from the American National Election Survey (ANES) for the United States, and the European Social Survey (ESS) for Europe. Our analysis for the United States exploits variation across states and over time (1980-2010), while our analysis of the ESS utilizes variation across European countries and over time (2002-2012). The results provide robust evidence that overall inequality lowers an individual’s sense of trust in others in the United States as well as in other advanced economies. These effects mainly stem from residual inequality, which may be more closely associated with the notion of fairness, as well as inequality in the bottom of the distribution. Since trust has been linked to economic growth and development in the existing literature, these findings suggest an important, indirect way through which inequality affects macro-economic performance.

For details, see the new IMF Working Paper.

Since the global financial crisis, productivity growth has been weak and there have been bouts of heightened uncertainty. My new paper shows that, historically, increases in aggregate uncertainty have reduced productivity growth in industries. The impact is stronger in industries that depend heavily on external finance. This effect is also larger during recessions, when financing constraints are more likely to be binding. These findings suggest that counter-cyclical macro policies can have beneficial impacts on productivity growth during uncertain times (which corroborates conclusions reached by Philippe Aghion and co-authors in a recent set of papers) as well as policies aimed at addressing weak corporate balance sheets. My paper is co-authored with Sam Choi, Davide Furceri and Yi Huang and is available here.

IMF-OCP Policy Center-Brunel University

Workshop on Global Labor Markets

September 1-2, 2016, Paris

Biography of Participants

Thursday, September 1

9-9.15               Opening remarks:

Tao Zhang, Deputy Managing Director, IMF

Karim El Aynaoui, Managing Director, OCP Policy Center

Session 1:       Does Growth Create Jobs? Global and Regional Evidence

Chair: Prakash Loungani (IMF)

Background paper on Okun’s Law

9.15-10.30        Laurence Ball (Johns Hopkins University)

Does One Law Fit All? Okun’s Law in Advanced & Developing Economies (Draft Paper and Presentation)

Tayeb Ghazi (OCP Policy Center)

Okun’s Law: (Un)fit for Low-Income Countries?

Nathalie Gonzalez-Prieto (IMF)

What Lies Beneath: Okun’s Law in U.S. States (Draft and  Presentation)

10.30-10.45     Coffee break

10.45-12          Discussants:     Willi Semmler (New School for Social Research)

Ekkehard Ernst (ILO)

Francois Facchini (University of Paris 1)

Mai Dao (IMF)

12-1.30           Lunch

1.30-2             Karim El Aynaoui and Aomar Ibourk (OCP Policy Center)

                       Policy Lessons from Okun’s Law for Developing Countries

Session 2:      Jobs and Growth: The Role of Policies and Institutions

Chair: Jean-Bernard Chatelain (Paris School of Economics)

2-3                   Haje Schutte and Karen Wilson (OECD)

The Sustainable Development Goals as Business Opportunities

                        Aurelio Parisotto (ILO)

                        Decent Work for All: Parsing Goal 8 of the SDGs

3-3.15              Coffee break

3.15-4              Romain Duval (IMF)

Can Reform Waves Turn the Tide? Some Case Studies Using the Synthetic Control Method

Discussant: Nauro Campos (Brunel University)

4-4.45              Sebastian Weber (ECB)

Reassessing the Role of Labor Market Institutions for the Business Cycle

Discussant:    Mai Dao (IMF)

4.45-5.30         Giovanni Melina (IMF)

Sectoral Labor Mobility and Optimal Monetary Policy

Discussant:    Manasa Patnam (CREST-ENSAE)

Friday, September 2

Session 3:      Labor Flows: Mobility, Migration, Displacement

Chair: Nauro Campos (Brunel University)

9-9.45              Amine Ouazad (Ecole Polytechnique)

Job Displacement and Crime: Evidence from Danish Microdata

Discussant: Ahmed Tritah (Universite du Maine)

9.45-10.45       Alessandro Turrini (European Commission)

Labor Mobility and Labor Market Adjustment in the EU

Anda David (Agence Française de Développement)

Migration and Employment Interactions in a Crisis Context: The Case of Tunisia

10.45-11          Coffee break

11-11.30          Discussants:     Davide Furceri (IMF)

Nawal Zaaj (Higher Council of Scientific Research, Morocco)

11.30-12.15      Martin Kahanec (Central European University)

Free Movement of Workers within the EU

12.15-1.30       Lunch

Session 4:      Policy Priorities and Prospects for the EU

Chair: Nauro Campos (Brunel University)

1.30-2             Rodolphe Blavy (IMF, Europe Office)

An Overview of Developments and Policy Debates

2-2.30             Francesco Saraceno (OFCE-Sciences Po)

An Assessment of EU Fiscal Policy

2.30-3.15        Panel:        Alessandro Turrini (European Commission)

Willi Semmler (New School for Social Research)

3.15-3.30         Coffee break

Session 5:      The Design of Labor Market Institutions        

Chair: Ahmed Tritah (Universite du Maine)

Active Labor Market Policies

3.30-4.30         Bruno Crepon (ENSAE-CREST)

Active Labor Market Policies: A Review

Veronica Escudero (ILO)

Cross-Country Evidence of Active Labor Market Policies

Minimum Wages, Unemployment Insurance and Employment Protection Legislation

4.30-5.15         Sabina Dewan (JustJobs Network)

Ekkehard Ernst (ILO)

Romain Duval (IMF)

Summing-up 

5.15-5.30         Laurence Ball (Johns Hopkins University)

“There is some evidence pointing to possible overstatement of growth recently, but the overstatement is likely moderate and the official national accounts data—while there is much room for improvement—likely provide a broadly reliable picture,” according to an IMF report.

China’s nominal GDP is probably larger than the official estimate. This could reflect flaws in measuring service consumption, including the inability to fully capture the switch from state-owned industrial firms to market-based (and often smaller) service firms. A study by the Rhodium Group, which duplicates the authorities’ statistical methodology, but addresses some key weaknesses, suggests nominal GDP is underestimated by, for example, 13–16 percent in 2008, and some other studies, while using different approaches, show similar results.

But growth may be smoothed since the smallest and most volatile firms may not be adequately captured in the statistical methodology. Indeed, skepticism that growth is overstated has grown recently, arising largely from the more pronounced weakening in some hard indicators compared to official growth data, including consumption of energy, industrial value added, and commodity imports. A few studies indicate that growth is not overstated over a long time horizon, but that the volatility is understated. Some further argue that the official nominal GDP data are reliable, but the weaknesses in deflators cause real growth to be smoothed. For example, the single deflation approach, which deflates input and output using the same deflator, tends to overstate growth when commodity prices decline sharply. But a counterargument is that the dynamism in the service sector is robust and not well reflected in the hard indicators mentioned above. For example, private consumption is buoyant, with retail sales growing by around 10 percent y/y in real terms.

“Underlying” growth may be weaker than officially reported, but only somewhat.

• Correlation. A sudden decline in the correlation between overall growth data and individual hard indicators could signal that the official data might overstate growth. However, looking at 12-month rolling correlations for real GDP growth versus electricity production, cement, crude steel and freight, does not suggest a recent significant decline (though the series are noisy).
• High frequency-based estimates. Out-of-sample estimates of growth from high-frequency PMIs and consumption/investment indicators are about ¼‒ ½ percent lower than official growth data in 2015.

These results, however, are only indicative of possible slower underlying growth. While providing some cross checks, they are not based on comprehensive datasets and cannot substitute for national account statistics. These approaches focus on underlying growth by analyzing variables traditionally shaping economic fundamentals, while actual growth also includes transitory factors not captured (e.g., the current strength of financial services).”

A new IMF working paper analyzes Cabo Verde’s demographic transition from the perspective of gender equality. It concludes: “As the pace of the demographic transition slows, promoting gender equality and increasing women’s labor force participation will be progressively more important in enhancing otherwise slow-growth dynamics, reducing poverty, and improving the lives of all, women and men.”