The Global Crisis led to a sharp contraction and long-lasting slump in both Eurozone and US real activity, but the post-crisis adjustment in the Eurozone and the US shows striking differences. This column argues that financial shocks were key determinants of the 2008-09 Great Recession, for both the Eurozone and the US. The post-2009 slump in the Eurozone mainly reflects a combination of adverse aggregate demand and supply shocks, in particular lower productivity growth, and persistent adverse shocks to capital investment linked to the poor health of the Eurozone financial system. Mono-causal explanations of the persistent slump are thus insufficient. Adverse financial shocks were less persistent for the US.
Robert Kollmann, Beatrice Pataracchia, Rafal Raciborski, Marco Ratto, Werner Roeger, Lukas Vogel, 27 April 2017
Douglas Irwin, 19 April 2017
The idea of comparative advantage is an essential part of every economists’ intellectual toolkit. On the 200th anniversary of the publication of “On the Principles of Political Economy and Taxation”, this column salutes David Ricardo’s achievement of setting out the theory for comparative advantage for the first time.
Daron Acemoglu, Pascual Restrepo, 10 April 2017
As robots and other computer-assisted technologies take over tasks previously performed by labour, there is increasing concern about the future of jobs and wages. This column discusses evidence that industrial robots reduced employment and wages between 1990 and 2007. Estimates suggest that an extra robot per 1,000 workers reduces the employment to population ratio by 0.18-0.34 percentage points and wages by 0.25-0.5%. This effect is distinct from the impacts of imports, the decline of routine jobs, offshoring, other types of IT capital, or the total capital stock.
Chang-Tai Hsieh, Nicholas Li, Ralph Ossa, Mu-Jeung Yang, 26 March 2017
Trade economists typically believe that in addition to lower prices for imported goods, trade liberalisation also brings import variety and domestic productivity gains. This column accounts for these ‘new’ gains in a careful reconsideration of the Canada-US Free Trade Agreement. Although the agreement did see improvements in Canadian income associated with import variety and domestic productivity, these were far outweighed by the welfare loss associated with the reduction in domestic variety. Nonetheless, Canadian welfare did improve overall when one takes into account the ‘traditional’ gains associated with lower import prices.
Sean Dougherty, Sarra Ben Yahmed, 20 January 2017
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.
Harald Fadinger, Christian Ghiglino, Mariya Teteryatnikova, 24 December 2016
Economists are just starting to understand how observed input-output linkages and productivity differences are connected. This column investigates how differences in the distribution of sectoral input-output multipliers interact with sectoral productivities to determine cross-country differences in aggregate income. It finds that the impact of the linkages on productivity are substantial, which in turn has significant implications for policy.
Enrico Perotti, 16 December 2016
Per-capita income in developed countries has stagnated, which most economists regard as a departure from the long-run trend. This column argues that zero long-term growth will be the new normal. In this zero-growth world, spending increases must always be balanced against spending reductions elsewhere or in the future, which creates a further problem: no politician could implement policy changes with such bleak outcomes.
Elisa Gamberoni, Claire Giordano, Paloma Lopez-Garcia, 13 December 2016
An efficient allocation of inputs across firms is a necessary condition to boost TFP growth. This column presents evidence that in large Eurozone economies, capital misallocation trended upwards in the period 2002-2012 while labour misallocation dynamics were flatter. Uncertainty and credit market frictions were strongly associated with the observed developments in capital misallocation, whereas the overall deregulation in the product and labour markets contributed to dampening input misallocation dynamics.
Francesco Furlanetto, Ørjan Robstad, 10 December 2016
The macroeconomic effects of immigration are a hot topic, particularly during elections. Using immigration records from Norway, this column argues that an increase in immigration lowers unemployment (even for native workers) and has no negative effects on public finances. However, it identifies a negative effect on productivity that may be a worry for long-term growth.
Lionel Fontagné, Gianluca Santoni, 20 November 2016
A key driver of productivity is ease of resource allocation. This column uses firm-level data for France to show that misallocation has a spatial dimension: resource allocation and the associated effect on productivity are related not only to firms’ characteristics, but also to the environment in which they operate. Denser commuting zones seem to offer a better match between employers and employees, leading to more productive firms.
Dale Jorgenson, Mun S. Ho, Jon Samuels, 01 November 2016
There has been speculation that the low employment rates for younger and less-educated workers in the US reflect a ‘new normal’. This column uses detailed new US data to project output, productivity, and employment rates over the next decade. The results indicate that US economic growth will continue to recover from the Great Recession through the resumption of growth in productivity and labour input. The recovery of employment rates for less-educated and younger workers will make an important contribution to future economic growth.
Laurie Reijnders, Marcel Timmer, Xianjia Ye, 25 October 2016
Offshoring and biases in technical change can have observationally equivalent effects on domestic labour demand, which precludes a quantification of their relative impacts. This column shows how biased technical change can be identified by studying global value chains that include all stages of production, both at home and abroad. It finds that technical change has been strongly biased against less-skilled workers, and in favour of high-skilled labour and capital.
Julián Messina, Oskar Nordström Skans, Mikael Carlsson, 23 October 2016
While standard microeconomic theory suggests that firms have no power over setting wages when markets are perfectly competitive, this view obviously clashes with the perceptions of the casual observer. This column uses data from Sweden to investigate the extent to which differences in firms’ pay are related to differences in physical productivity. It finds that firms that benefit from positive productivity shocks increase the wages of incumbent workers, and in particular firms among which there is substantial labour mobility. The evolution of productivity among such firms appears to be a crucial determinant of workers’ wages.
Elisa Gamberoni, Christine Gartner, Claire Giordano, Paloma Lopez-Garcia, 21 October 2016
Economists have argued that corruption in business can potentially grease the wheels of an economy. This column presents evidence from nine Central and Eastern European countries on the effects of bribes on the efficiency with which production factors are allocated across firms. The impact of corruption on capital and labour misallocation is larger the smaller the country, the lower its political stability and the weaker the quality of its regulation. This is evidence against the ‘grease the wheels’ hypothesis.
Harald Hau, Yi Huang, Gewei Wang, 17 October 2016
Business book writers claim that management quality of some type matters when creating successful firms. But this conventional wisdom has largely defied serious empirical analysis. This column looks at statistical evidence on the productivity response of Chinese firms to minimum wage shocks, and finds that better-managed firms adapt better to adverse competitive shocks. This suggests that management quality matters for this type of adaptability
Isamu Yamamoto, 14 October 2016
There is ample empirical evidence showing that poor mental health is increasing, but the impact of this on long-run productivity and its implications for the labour market are not well researched. This column outlines two ways in which labour market research can contribute to the study of the impact on mental health of working conditions. It also identifies several channels related to working conditions that affect mental health, and argues that deteriorating mental health adversely affects corporate performance in the long run.
Peter Gal, Alexander Hijzen, 27 September 2016
Product market reforms are seen as a way to boost output in advanced economies, but we know little about their short-term impact. This column presents data from 18 advanced economies that reveal large differences in the potential upside of reform depending on the sector in which a firm operates, its size, and its financial health.
Enrique Fernández-Macías, Martina Bisello, 25 September 2016
A tasks approach to labour market analysis can contribute to a better understanding of structural change and employment trends. However, its narrow focus on a few specific types of task content and its neglect of the social aspects of production can limit the usefulness of this approach. This column presents a new framework for conceptualising and measuring tasks, and discusses an application to Europe.
Achyuta Adhvaryu, Namrata Kala, Anant Nyshadham, 27 August 2016
Energy-efficient technologies are an increasingly relevant policy priority, given growing consensus on the need to tackle climate change. This column examines the productivity benefits of adopting one such technology – LED lighting – for manufacturing firms in India. It finds that improved productivity resulting from LED lighting’s lower heat emissions makes adopting such technology far less costly than previous anticipated, particularly for labour-intensive firms in hot climates.
Wolfgang Keller, Javier Andres Santiago, Carol Shiue, 23 August 2016
In international trade theory, countries are often treated as homogenous regions, with no account taken of their internal geography. This column uses evidence from China’s Treaty Port Era to show how domestic trade frictions shape welfare gains from trade. Gains from new technologies that lower trade costs are shared, but the gains are not evenly distributed. Lower trade costs can also mean lower welfare for productivity leaders, who may be replaced by low-cost suppliers from less productive regions as the costs of transport decline.