The distribution of talent and human capital is highly skewed across the world. As high-income countries engage in a global race for talent, the resulting migration of high-skilled workers across countries tilts the deck even further. This column draws upon newly available data to outline the patterns and implications of global talent mobility. Key results include recent dramatic increases in high-skilled migration flows, particularly in certain occupations, in certain countries, among those with higher skill levels, and from a wider range of origins.
Economists point to three factors to explain how population is distributed: geographical characteristics, agglomeration, and history. This column, taken from a new Vox eBook, examines how economic and technological development have changed the ways in which two first-nature characteristics – suitability for growing food and suitability for engaging in trade – impact population distribution.
Despite the importance of insurance, discussions about the macroeconomic role and the risks of insurance markets have been surprisingly limited. This column explores some of the key theoretical and conceptual questions still unanswered in this field, and suggests that a two-fold approach combining a focus on individual firms and an activity-based approach across the sector is needed to tackle systemic risk within the insurance industry.
The immense economic inequality we observe in the world today is the path-dependent outcome of a multitude of historical processes, one of the most important of which has been European colonialism. This column, taken from a recent Vox eBook, discusses how colonialism has shaped modern inequality in several fundamental, but heterogeneous, ways.
Peers and role models play a key role in the choices young people make. This column discusses research suggesting that students who are part of a social circle have more self-control than those who are alone, and the larger this social circle, the greater the self-control. However, having peers who are too similar can be detrimental to self-control.
We still know little about how firms alter their global sourcing patterns when facing uncertainty and shocks. This column uses Japanese firm-level data compiled after the Great East Japan earthquake of 2011 to show that firms in affected areas reacted immediately by offshoring more, but that this affect was significant only in the manufacturing sector. Policies to facilitate offshoring would support such emergency responses in future.
There is a notable lack of consensus about how central bank transparency affects uncertainty in the economy, as well as how transparency should be measured. This column reviews some recent contributions that highlight how transparency does not have consistent and unambiguous effects on economic uncertainty. Despite this ambiguity, transparency seems to be more often favourable than unfavourable.
It has been observed that since the start of the Global Crisis, central banks in most advanced economies have become more powerful and political, but they have not become more accountable. This column discusses why central bank independence matters, and looks at whether it has changed since the crisis.
The decline of manufacturing jobs in the US has been the focus of much attention recently, with rising trade with China cited as one explanation. This column describes how the German economy has experienced a similar secular decline in manufacturing and rising service employment, but that growing trade with China and Eastern Europe did not speed up this trend. In fact, rising exports to the new markets have stabilised industry jobs.
Electronic money – digital payment instruments that store value – can be seen simply as a technological innovation for holding and accessing regular money. This column argues that how it is used and regulated will determine whether e-money instead serves as a replacement for existing money, and discusses the regulatory implications.
The IMF and the Federal Open Market Committee have both suggested that the costs of ‘leaning against the wind’ exceed the benefits. This column responds to claims that the results of the author's research backing up this conclusion could be overturned. It argues that the alternative assumptions necessary to overturn the result are unrealistic, and that the finding that the costs of the policy exceed the benefits therefore seems to be robust.
Central banks inject money into the economy against collateral, but we know little about the terms of the exchange. This column argues that market forces or discipline have little role to play in the central bank collateral frameworks that are the foundation of the monetary and financial system. This distorts the financial system and wider economy – in the Eurozone, for example, political influence on these frameworks has created indirect bailouts of some banks and sovereigns.
The British government and the EU face a difficult negotiation over the terms of Brexit. This column uses new data on the content of trade agreements to assess the trade impact of Brexit, identifying a tradeoff between the depth of the post-Brexit agreement and the intensity of future UK-EU trade. A ‘harder’ Brexit may have a stronger negative impact on the UK’s services trade and supply chain integration, which have relied more on the depth of the EU. This tradeoff will likely delimit future policy choices.
Risk sharing across the Eurozone is well below the levels observed in other federations, including the US. This column argues that the US achieves more intensive risk sharing largely because of a more integrated financial market, and also that the contribution of public institutions to risk sharing is much higher in the Eurozone than in the US. The reason why the Eurozone needs more fiscal transfers to withstand idiosyncratic shocks is not because these institutions should do more to improve risk sharing, but because delegation of risk sharing to national governments threatens the stability of the currency union.
Over the past decades, economists working on growth have ‘rediscovered’ the importance of history, leading to the emergence of a vibrant, far-reaching inter-disciplinary stream of work. This column introduces a new eBook in three volumes which examines key themes in this emergent literature and discusses the impact they have on our understanding of the long-run influence of historical events on current economics.
The late Thomas Schelling’s 1960 classic, The Strategy of Conflict, opened up new vistas in the then emergent field of game theory. This personal tribute by a longstanding friend and colleague describes how Schelling’s creative and playful mind, his incredible breadth of interests, and his unparalleled mastery of strategic analysis opened up a new world of intellectual possibilities.
Thomas Schelling, game theorist and co-recipient of the 2005 Nobel Memorial Prize in Economic Sciences, passed away in December 2016 at the age of 95. This column explores how his lack of concern with professional methodological norms allowed him to generate new knowledge with great freedom, and to make innovations in method that may end up being even more significant than his specific insights into economic and social life.
Despite the seemingly obvious link between good management and firm performance, establishing a causal link between the two is actually rather tricky. This column examines how Portuguese firms responded to the sudden and unexpected end to the civil war in Angola in 2002, and discovers an immediate spike in export entry rates for firms with at least one manager with previous experience of exporting to Angola. This finding on the impact of acquired knowledge on performance is especially useful for firms looking to operate in foreign markets.
The negative impact of higher capital requirements under Basel II on the provision of trade finance has been cited as one of the factors behind the Great Trade Collapse. This column exploits the adoption of the Basel II framework in Turkey in 2012 to investigate how a shock to the supply of trade-specific finance (in this case, letters of credit) affected firm-level exports. Changes in the cost of letters of credit affected Turkish firms’ reliance on trade finance, but the regulatory shock did not affect firm-level export growth.
Innovation is typically seen as a cumulative process, with new technologies building on existing knowledge - but our knowledge of how progress in a specific area is influenced by knowledge in other, ‘upstream’ areas is limited. Using US patent data, this column identifies a stable ‘innovation network’ that serves as a conduit for cumulative knowledge development. Technological advances in one field can advance progress in multiple neighbouring fields, but will have a stronger influence on more closely related areas.
Globalisation offers many benefits, some of which cannot be separated from other types of policy. This column examines how the benefits from removing regulations that impede competition are partly contingent on openness to import competition. Using recent firm-level analyses of productivity growth, it argues that those firms that contribute the most to overall growth could also be held back by reduced openness, harming overall advances in incomes.
EU budget reform is a key issue in policy debates, in particular the redistributive effects between member states. This column assesses redistribution within the EU budget over the period 2000 to 2014. It finds that the net redistributive impact of the EU budget is rather small and, contrary to common belief, that the revenue side is more progressive than the expenditure side.
A high correlation of business cycles is usually seen as a key criterion for an optimum currency area. This column argues that the elasticity with which countries react to the common cycle is equally important. A country with a non-unitary growth elasticity relative to the common area will experience cyclical divergences at the peak and trough of the common cycle. Despite being characterised by highly-correlated business cycles, the Eurozone suffers from widely differing amplitudes.
‘Too big to fail’ is an enduring problem for financial authorities and regulators. While forbidding government bailouts may be a popular move, the strategy lacks credibility. This column examines the proposals of the Minneapolis Plan to End Too Big to Fail. The plan has many virtues that tackle systemic problems and that build on the Dodd-Frank Act’s crisis prevention and management tools. However, further analysis of the plan is still needed to ensure that its measures aren’t circumvented.
Identifying the exact triggers for safe-haven flows in not easy, nor is tracking the ways in which demand for safe havens materialises. This column uses an empirical analysis of movements of the Swiss franc and Japanese yen since 2000 to show that these safe-haven currencies reacted strongly to non-domestic macro surprises, especially during the Global Crisis, and that this is in addition to the expected reaction to general changes in the risk environment. Oddly, for European macro surprises, only German data influence safe-haven currencies.
Recent research suggests a point beyond which the benefits of financial development diminish, and further development can even hurt growth. This column describes how a negative relationship between credit and growth emerged strongly after 1990 and was particularly pronounced in the Eurozone, consistent with the notion that an overgrown financial sector weakens economic growth potential. It also argues that slower growth leads to more rapid financial sector expansion. Policymakers need to be aware of the possibility that causality runs in both directions.
The availability of statistics on services by modes of supply has been a longstanding priority for trade negotiators and an important element of other trade policy priorities. Based on a recent Eurostat project, this column presents the first such estimates for EU trade in services. It also explores possible avenues for building a global services dataset by modes of supply building on the latest European initiatives in this area.
National trade policies have been at the heart of recent policy debates, with many calls for industrial policies to help pick winners. This column shows that while a few export goods account for the bulk of export value within each country, hyper-specialisations are very unstable, making it unlikely that industrial policy will work even in the medium run. The best policy to promote exports would be just to let entrepreneurs exploit new opportunities as they arise.
Recent research into the share of wealth owned by the richest households has given us important insights into trends in inequality. This column shows how we can now estimate the share of wealth owned by the richest households in Europe, and how many they numbered, from 1300 to the present day. Throughout this time, the only significant declines in inequality were the result of the Black Death and the World Wars.
During World War II, the German military publicly celebrated the performance of its flying aces to incentivise their peers. This column uses newly collected data to show that, when a former colleague got recognition, flying aces performed much better without taking more risks, while average pilots did only slightly better but got themselves killed much more often. Overall the incentives may have been detrimental, which serves as a caution to those offering incentives to today's financial risk-takers.
The scale and scope of central bank lender of last resort operations during the Global Crisis raised concerns that central banks may be taking excessive risks and supporting moral hazard. This column argues that criticism of such operations is misguided. In the crisis, central banks did not make financial losses when acting as lender of last resort, which shows that they have applied their frameworks with prudence.
With growth and inflation in Europe remaining low, the idea of helicopter money is slowly gaining traction with politicians and economists alike. This column presents the results of a survey that asked people how, if they were to receive an extra €200 per month to do with as they chose, they would use the money. There was broad support for the policy among respondents, but only about one in four said they would spend most of the money. The findings suggest that a larger impact might be achieved if instead the money were given to the government to finance projects.
Rapidly ageing populations, the refugee crisis, and growing anti-immigration rhetoric have brought immigration issues to the forefront recently. Using a panel of 18 countries, this column explores the long-term effects of migration on receiving advanced economies’ GDP per capita and labour productivity. Both high- and low-skilled migrants are found to raise productivity and GDP, and these gains appear to be broadly shared across the population.
Tariffs – taxes on imported goods – likely impose a heavier burden on lower-income households, as these households generally spend more on traded goods as a share of expenditure/income and because of the higher level of tariffs placed on some key consumer goods. This column estimates the tariff burden by income group and by family structure using a new dataset constructed by matching of granular data on trade and consumer spending. The findings suggest that tariffs function as a regressive tax that weighs most heavily on women and single parents.
Recent economic events cast doubt on the standard macroeconomic models. This column looks at new economic models built on the idea that inequality and income risk matter for the business cycle and long-run outcomes. While still in their infancy, these models show promise in addressing the concerns about the old New Keynesian models, and in bringing about a shift in the way that macroeconomists think about aggregate fluctuations and stabilisation policy.
Over the past 30 years, most central banks across the advanced economies have been given the ability to conduct monetary policy independently from interference by fiscal and political authorities. The latest Centre for Macroeconomics and CEPR expert survey invited views on whether this era of central bank independence is drawing to a close, particularly in Europe. Only 31 of the 70 respondents disagreed with the statement that there will be significant changes in the independence of monetary policy in the UK and the Eurozone in the foreseeable future. The survey also reveals that the well-established proposition among economists that a reduction in central bank independence will lead to higher inflation is no longer taken for granted, but maintaining central bank independence remains desirable.
Many studies have addressed the question of why people default on their mortgages, but lack of data has meant that much of this research has omitted the effect of the owner's ability to pay. This column uses panel data on defaults and changes in income to show that ability to pay is a much more important determinant of default than previously recognised. If the head of household loses a job, for example, this is equivalent to the effect of a 35% drop in home equity. Policies targeted at increasing ability to pay may be more effective at reducing default than those that try to remedy negative equity.
In around 25 years, the internet has become an integral part of our daily lives, connecting billions of users and businesses worldwide and leading to an explosion in the volume of cross-border digital flows. This column attempts to measure these flows and their impact on global activity in general. Global flows of goods, services, finance, people, and data have raised world GDP by at least 10% in the past decade, with the contribution to growth of GDP from data flows nearly matching the value of global trade in physical goods and services.
Far-right parties have made considerable electoral gains around the world lately, fuelled in part by strong anti-immigration rhetoric. This column presents the results of an experiment conducted in Japan to assess whether exposure to positive information about immigration can decrease this public hostility. Such information exposure is found to increase an individual’s likelihood of supporting immigration by between 43% and 72%. This suggests that information campaigns are a very promising avenue for policymakers aiming to redress hostility to immigration.
The Unemployment Insurance programme in the US was significantly expanded during between 2008 and 2014. This column examines the effect of unemployment insurance duration on aggregate employment during the Great Recession using state-level expansions and contractions in insurance generosity. It finds a positive but not statistically significant employment impact of expanding the insurance. This suggests that the substantial insurance value of the extensions during the Great Recession was not offset in any meaningful way by any costs from weaker job growth.
Recent explanations for the persistence of both the gender wage gap and the under-representation of women in top jobs have focused on behavioural aspects, in particular on differences in the responses of men and women to competition. This column suggests that it may not be competition itself that affects women, but the gender of their opponent. Analysis of data from thousands of expert chess games shows that women are less likely to win compared with men of the same ability, and that this is driven by women making more errors specifically when playing against men.
Anthony B. Atkinson passed away on the morning of 1 January 2017 at the age of 72, after a long illness. This column describes how he established a unique place for himself among economists over the past half-decade by putting the question of inequality at the centre of his work while demonstrating that economics is first and foremost a social and moral science, in defiance of prevailing trends.
Traditional HIV/AIDS education campaigns have not been completely effective in curtailing new infections. One potential reason behind this is that most of the infections occur among individuals who are willing to take risks when it comes to sexual behaviour, and campaigns have failed to specifically target these people. This column describes a new HIV intervention trialled in Lesotho that used a lottery to target such individuals and incentivise safer practices. HIV incidence was reduced by more than a fifth in treatment groups over the trial period. These results, combined with practical and cost advantages, suggest that such interventions could prove invaluable in the fight against HIV.
It has become consensus to argue that we have approached ‘peak trade’ or the ‘end of globalisation’: that the past five years of stagnant global trade growth are not temporary, but instead reflect persistent forces that are likely to drive a continued stagnation in global trade over the long run. Though this view preceded the Brexit referendum, this column argues that it has now been amplified by the UK’s vote to leave the EU and the prospect that, potentially, US President-elect Trump and other leaders across developed markets will implement protectionist trade policies. The authors consider the arguments for ‘peak trade’, and conclude that, though downside risks to the trade outlook are prominent, there is little evidence – yet – that the current stagnation in global trade is predestined to extend far into the future.
Temporary job contracts account for a substantial proportion of the workforce in countries such as France and Spain, but they can result in high job turnover and instability. This column assesses the impact of government policies that impose taxes on temporary contracts to induce employers to lengthen job durations. Such policies a negative impact on the labour market, reducing the mean duration of jobs and decreasing job creation. The introduction of open-ended contracts with no termination cost for separations occurring at short tenure may be more effective.
The various projections of the impact of Brexit on the UK economy that were produced during the referendum campaign omitted the economic impact of changes in migration to the UK. This column presents plausible scenarios for future migration flows and estimates of the likely impacts. The potential negative impact of Brexit-induced reductions in openness to migration on the UK economy could well equal that resulting from Brexit-induced reductions in trade.
One of the factors driving house price growth in many countries is foreign investor demand. Using new UK data, this column argues that foreign investment has had a significant positive effect on house price growth in the last 15 years. The effect is not limited to expensive homes but ‘trickles down’ to less expensive properties, and is stronger where housing supply is less elastic. Foreign investment is also found to reduce the rate of home ownership, but there is no evidence of an effect on the housing stock or share of vacant homes.
Uncertainty shocks are a major avenue of research in the quest to explain business cycles, as well as asset prices and financial crises. This column argues that three conceptually distinct types of uncertainty that are often modelled independently – ‘macro’ uncertainty about an aggregate variable such as GDP, ‘micro’ uncertainty about firms’ individual outcomes, and ‘higher-order’ uncertainty that people have about the beliefs of others – are in fact related because all three are tied to disaster risk.
Previous studies on labour market discrimination based on sexual orientation have not revealed whether reported differences in earnings have been due to differences in the samples, populations, or outcomes, nor what the likely cause might be. Using a UK-wide dataset of sexual orientation and labour market earnings, this column shows that the overall difference in earnings for men who identify as gay is near zero irrespective of whether they are in a partnership or not, while women with a lesbian orientation have an earnings premium of about 5.5%. Specialisation explains earnings differences that depend on partnership status, though outside London there is some evidence of discrimination.
The core-periphery gap raises important questions for economic geography. Using Japanese data, this column examines firms’ decision to separate non-production activities from production plant facilities. Large plants, plants which intensively purchase materials, and plants located further from the core are more likely to have separate corporate headquarters, though the magnitude of this effect is small. Small-sized plants appear to be especially vulnerable to remoteness from urban cores.
The discussion of the delayed lift-off in US monetary policy is just the latest episode in a long-lasting debate over the causes of inertia in monetary policy. This column approaches the issue by assuming that psychological drivers can influence the decisions of central bankers. Loss aversion is one source of behavioural bias which can explain delays in changing the stance of monetary policy, including the fear of lift-off after a recession.