January 2020

Kerr, 31 January 2020

Why are cities so keen to create their own technology clusters, and why is it so difficult? Bill Kerr of Harvard Business School tells Tim Phillips what economists know (and don't know) about where tech clusters come from

O’Reilly, Parra Ramirez, Stemmer, 31 January 2020

Since the G20 declared in 2009 that “the era of bank secrecy is over”, jurisdictions have implemented an unprecedented range of measures designed to increase tax transparency by ensuring that information on foreign financial assets would be disclosed to tax authorities. This column presents the main results from a recent study on the impact of exchange of information on foreign-owned bank deposits in international financial centres. The findings highlight the effectiveness of the expansion of automatic exchange of information and provide evidence of the success of a comprehensive multilateral approach towards tax transparency.

Hanlon, Jaworski, 31 January 2020

The slowing pace of economic growth in the US and Europe have rekindled fears of reduced innovation and prompted calls for institutional changes meant to increase returns on spending for research and development. This column uses the case of the US interwar aircraft industry to suggest some unforeseen hazards of such change. It recommends considering the design of innovation and antitrust policy in tandem, especially where attempts to provide incentives for innovation may alter the extent of competition and endogenously reconfigure market structure.

Dawar, 31 January 2020

There are now over 100 national export credit agencies, delivering approximately $215 billion in official export support to domestic firms’ exports of goods, services, and investments. This column argues that governments have a collective interest in revamping the rules to prevent an export credit subsidy war and a race to the bottom in terms and conditions. This could be done through the International Working Group on Export Credits and also by the European Commission setting a gold standard by more rigorously evaluating longer-term export credit activity.

Ariel Aaronson, 30 January 2020

While data are cheap and plentiful in many developing countries, data analysis, with its dependence on infrastructure and highly skilled labour, is expensive. This column asks whether developing countries are ready for the new data-driven economy and how development organisations might help them. It concludes that developing countries should be encouraged to develop plans for data governance and to experiment through technical assistance, regulatory sandboxes and collaboration. At the same time, development agencies and advocates need to wrestle with important questions about data-driven growth.

Connell, Dhyne, Vandenbussche, 30 January 2020

How do firms become exporters? Using transaction-level data from Belgium, this column examines the role of intermediary firms in the internationalisation process. It finds that a manufacturing firm that exports indirectly to a particular destination via a wholesaler is more likely to go on to become a direct exporter to that destination at a later point. This effect is driven by the spillover over of knowledge on foreign demand from the wholesaler to the manufacturer. The role of intermediaries is particularly important for destination markets that are further afield, where firms face greater uncertainty. 

Mokyr, Sarid, Beek, 30 January 2020

The consensus among economic historians has been that Britain’s leadership during the Industrial Revolution owed little to the school system. But recent work on human capital suggests that we should rethink this consensus on the role of human capital. This column shows how millwrights – highly skilled carpenters who specialised in constructing and repairing watermills – had a persistent effect on the mechanisation of textile- and iron-making and on the economic expansion that was taking place on the eve of the Industrial Revolution.

Zaghini, 30 January 2020

In June 2016, the ECB launched its corporate sector purchase programme, through which it purchased corporate bonds in an effort to improve the financing conditions of euro area firms. This column argues that the programme was successful. In particular, by increasing prices and reducing yields in the targeted bond market segment, it encouraged investors to shift their investments towards similar but somewhat riskier bonds. This reduced borrowing costs for many firms, including those whose bonds were not eligible for direct purchase by the ECB. 

Boschini, Roine, 29 January 2020

While the rising income share of top earners has received enormous attention in recent years, the share of women at the top has not been examined as closely. This column analyses income tax data from Sweden, where taxes are filed individually regardless of marital status. It finds that while the share of women among the wealthiest groups has steadily increased over time, women remain a clear minority, especially at the very top. Unlike top-income men, top-income women are much more likely to have partners who are also in the top of the income distribution.

Becker, Grosfeld, Grosjean, Voigtländer, Zhuravskaya, 28 January 2020

Can the experience of being uprooted by force encourage people to invest in portable assets such as education? The idea has a long history but is a difficult hypothesis to test. This column combines data from historical censuses with newly collected survey data to show that Polish people with a family history of forced migration as a result of WWII are significantly more educated today than any comparison group. The results suggest a shift in preferences toward investment in human rather than physical capital, and imply that the benefits of providing schooling for forced migrants and their children may be even greater – and more persistent – than previously thought.

Wickens, 28 January 2020

Where should the emphasis lie in macroeconometric modelling between the purity of the economic theory and empirical performance? The widespread use of DSGE models estimated by Bayesian methods has been accompanied by a downgrading of the role of statistical fit. This column reviews the issue and concludes that the challenge is to incorporate greater flexibility into the theory in such a way as to be compatible with both the theory and the data.

Comunale, Mongelli, 27 January 2020

Over the past 30 years, euro area countries have undergone significant changes and endured diverse shocks. This column assembles a large set of variables covering the years 1990-2016 and investigates possible links to fluctuations and differences in growth rates. The findings suggest a significant positive role for institutional integration in supporting long-run growth, particularly for periphery countries. Competitiveness and monetary policy also matter for sustained growth in the long run, while higher sovereign stress, equity price cycles, loans to non-financial corporations and debt over GDP have either mixed or negative effects in core and periphery countries.

Bindler, Hjalmarsson, 27 January 2020

Determining whether increased policing reduces crime is a difficult task, in part because policing affects crime and crime also affects policing. This column approaches the problem historically, asking whether the introduction of the first professional police forces in the 19th century, from the London Metropolitan Police onwards, reduced crime. It finds that when police forces were sufficiently large and well-regulated, they had a crime-reducing effect that, while not immediate, did persist over time.

Gao, Sockin, Xiong, 26 January 2020

Housing speculation became a national phenomenon in the low interest rate environment of the US during the mid-2000s. This column argues that speculation, which was largely independent of the credit expansion to subprime households, contributed significantly to US housing and economic cycles in the 2000s. It led not only to greater price appreciation, economic expansions, and housing construction during the boom in 2004–2006, but also to more severe economic downturns during the subsequent bust in 2007–2009. 

Engzell, Tropf, 26 January 2020

The debate about the influence of ‘nature versus nurture’ in human achievement persists. This column contributes to this debate by linking trends in intergenerational mobility to data from nearly 50,000 twins. The findings suggest that in countries with lower rates of social mobility, family environment (‘nurture’) plays a more significant role than it does in countries where institutions that promote mobility enjoy wide support.

Bianchi, Kind, Kung, 25 January 2020

President Trump has frequently attacked the Federal Reserve, but if the markets believe that the Fed is immune to political pressure, these tweets should not affect expectations about future monetary policy. This column argues that this is not the case. Tick-by-tick fed funds futures data around the time of Trump tweets criticising the conduct of monetary policy suggest that market participants do not believe the Fed is fully independent.

Auriol, 24 January 2020

An experiment in Haiti shows that people take more risks in the presence of religious images, even if there is less chance they will win. Emmanuelle Auriol tells Tim Phillips about the challenges that belief in a higher power presents for economic development.

Lilley, Maggiori, Neiman, Schreger, 24 January 2020

The ‘exchange rate disconnect’ describes the difficulty of explaining exchange rate movements using classical models and fundamentals. This column presents evidence of an ‘exchange rate reconnect’ – a substantial co-movement of the US dollar with global risk premia and US foreign bond purchases since the Global Crisis. Though short-lived, this relationship between these factors could shed new light on the nature of financial crises and risk.

Beetsma, van Spronsen, 24 January 2020

For the last decade, euro area countries have undertaken substantial debt issuances in order to maintain or bolster international capital market access. This column shows that the ECB's unconventional monetary policy dampens yield cycles in secondary markets for euro area sovereign debt around new debt auctions. This dampening effect tends to be larger when market volatility is higher, and this can be used to minimise any instability generated, for example, by different countries’ issuances occurring close together or the spillover effects of one country’s auctions on another. 

Barros, Santos Silva, 24 January 2020

Brazil plunged into economic crisis between 2014 and 2018, the year when far-right populist Jair Bolsonaro won the presidential election. This column, part of the Vox debate on populism, argues that Bolsonaro’s surprising victory is partially explained by the way the economic crisis interacted with prevailing gender norms. In regions where men experience larger employment losses, there is an increase in the share of votes for Bolsonaro. In contrast, in regions where women experience larger losses, his vote share is relatively lower. This may be explained by men feeling more compelled to vote for a figure that embodies masculine stereotypes as a way of compensating for a decline in economic and social status.

Atalay, Phongthiengtham, Sotelo, Tannenbaum, 23 January 2020

Since the late 20th century, middle-wage occupations have shrunk as a share of total employment, while occupations requiring social and analytic tasks have grown. However, little is known about the degree to which individual occupations or job titles have changed over time and the extent to which these changes have been driven by new technologies. Analysing approximately 8.7 million job ads published in newspapers during 1940–2000, this column finds that non-routine analytic and interactive tasks in jobs increased, while manual tasks declined. The majority of changes have occurred within rather than between occupations. New technologies are linked to increased intensity of non-routine analytic job tasks.

Gornicka, Kamps, Koester, Leiner-Killinger, 23 January 2020

Recent studies have highlighted that the fiscal multipliers used by institutional forecasters were gradually adjusted upwards as the European sovereign debt crisis developed. This column confirms this finding, using a new dataset compiled from European Commission forecasts under the Excessive Deficit Procedure of the Stability and Growth Pact. In contrast to previous claims that the fiscal multiplier rose well above one at the height of the crisis, however, the authors argue that the ‘true’ ex-post multiplier remained below one.

Arcidiacono, Kinsler, Ransom, 22 January 2020

Many elite universities in the US send recruitment materials to secondary school students in an effort to enlarge their applicant pools. This column focuses on Harvard University and documents a sudden increase in African American applications, driven by those with lower entrance exam scores, which did not result in a larger share of African American admits. It discusses possible motivations for this practice of recruiting applicants, particularly African Americans, who essentially have no chance of being admitted. 

Greenwood, Guner, Kopecky, 22 January 2020

Increased access to birth control does not seem to have decreased the number of unplanned pregnancies. Instead, as contraceptive technology improved over the course of the 19th and 20th centuries, the percentage of non-marital births in the US rose. This column uses a marital search model to make sense of this seeming paradox, and concludes that advancements in contraception led to more premarital sex, an increase in out-of-wedlock births, and a decline in the fraction of the married population.

Lin, Thomas, Kalnins, 22 January 2020

Why do so many transactions take place within firms rather than between independent agents via markets? This column sheds new light on this question by analysing hotel chains’ decisions about whether to outsource management to independent franchisees. Properties with the lowest and the highest occupancy rates tend to be managed by franchisees, at arm's length from the hotel chain. This variation in organisational form is consistent with the authors’ model in which the incentives embodied in management contracts vary with property-level productivity. 

Svensson, Westermark, 21 January 2020

For almost 200 years, old coins were frequently declared invalid in large part of medieval Europe and had to be exchanged for new ones for an exchange fee. This column shows that frequent recoinage generates incomes for the minting authority when the tax level is low enough and the punishment for using invalid coins is high enough, and when there is a limited coin volume in circulation and also an exchange monopoly. The system is equivalent to the 20th-century idea known as the Gesell tax. 

Castle, Hendry, Martinez, 21 January 2020

Real wages and productivity in the UK have stagnated since 2007, whereas employment has risen considerably. Many commentators lament the consequent failure of `living standards’ to rise at historical rates. But real GDP per capita has grown by more than 20% since 2000 despite the Great Recession, so aggregate living standards have in fact risen. This column resolves the apparent paradox.

Barthélemy, Mengus, Plantin, 21 January 2020

Real interest rates are at historically low levels in advanced economies. This column looks at the implications for central bank independence. It argues that low rates, even though they relax the budget constraint of the public sector, will not necessarily strengthen central bank independence. Quite counterintuitively, in the current context of low inflation, preserving central bank independence may require that the public deficit be financed with helicopter money, rather than government debt, to prevent the government from entering into uncontrollable spending. 

Mayda, Parsons, Pham, Vézina, 20 January 2020

While resettled refugees in the US historically exhibit remarkable success, this column shows that refugees also foster development to their origin countries through the mechanism of foreign direct investment. A 10% increase in refugees in a given commuting zone causes outward FDI flows to increase to their countries of origin, 10 to 15 years after having taken refuge, by 0.54%. Decisions made primarily for humanitarian reasons in developed host nations thus yield economic benefits for some of the world's poorest nations in the medium run.

Aiginger, 20 January 2020

The new president of the European Commission, Ursula von der Leyen, has announced a ‘European Green Deal’ and the Commission has asserted Europe’s need to develop a new growth model to achieve climate neutrality. However, the Commission’s limited view of ‘productivity’ ignores the fact that raising labour productivity can raise emissions and accelerate climate change. Instead, this column argues that a welfare-oriented Green Deal needs to focus on resource and energy productivity, not raising labour productivity.

Fioretti, Wang, 19 January 2020

As health spending continues to rise globally, pay-for-performance can be an attractive policy tool for promoting high-quality services at lower costs. But there are concerns that it weakens the finances of poor-performing hospitals in low-income areas. This column examines the efficiency and equity consequences of the introduction of pay-for-performance in the Medicare insurance programme in the US. It finds that after the payment reform, high-quality insurers selected healthier enrollees, shifting the distribution of high-quality insurance to the healthiest counties and worsening regional disparities in healthcare access.

Diwan, Haidar, 18 January 2020

Firm-level political connections are widespread. This column examines whether they affect employment decisions in Lebanon, a country where the majority of university students think that connections are important for finding jobs and many admit to having used them. While politically connected firms create more jobs than unconnected firms, the presence of such firms in a sector is correlated with lower aggregate job creation. This finding is consistent with the hypothesis that unfair competition from politically connected firms hurts unconnected competitors so much that aggregate growth in the sector is affected negatively.

Goodhart, Venables, 17 January 2020

When the industries that have sustained our cities decline, how can we regenerate urban areas? At the SUERF conference in Amsterdam, Tony Venables and Charles Goodhart tell Tim Phillips that redevelopment policies may have made regional inequality and social conflict worse.

Savona, 17 January 2020

Personal data have value, and economists failed to predict that this value would become concentrated in the hands of digital platforms. The column presents a novel data-rights approach to redistributing data value while not undermining the ethical, legal and governance challenges of doing so. This can be done by giving individuals authorship rights to their personal data.

Azmat, Hassler, Ichino, Krusell, Monacelli, Schularick, 17 January 2020

Climate change is at the top of our policy agendas. What can economics contribute to help deal with this important global challenge? With the aim of answering this question, the Managing Editors of Economic Policy are opening a call for papers for a special issue on “The Economics of Climate Change” to bring together the best ideas to inform the debate and provide high-impact policy advice.

Janke, Propper, Sadun, 17 January 2020

Studies have shown that in the private sector, top managers and CEOs can make a difference in the performance of their organisations and have a ‘style’ that is portable across firms. This column uses the setting of hospitals in the English National Health Service to examine whether CEOs can make a difference in large and complex public sector organisations. The findings suggest that the CEOs of large public hospitals do not have a significant impact on performance, casting doubt on the ‘turnaround CEO’ approach to management in the public sector.

Kalemli-Ozcan, 16 January 2020

The question of how shifts in US monetary policy affect other nations is key to central bank policymaking around the world. This column combines a simple theoretical framework with macro data from 70+ countries and micro data from over a million non-financial firms in 43 of these countries to show that monetary policy spillovers from the US to the rest of the world operate through changes in risk premia, with emerging market economies most vulnerable. It also discusses the policy options available to countries to deal with the effects of these risk spillovers.

Feyen, Frost, Natarajan, 16 January 2020

Proposals for global stablecoins have put a welcome spotlight on deficiencies in financial inclusion and cross-border payments and remittances to emerging market and developing economies. This column, part of the Vox debate on digital currencies, argues however that stablecoin initiatives are no panacea. Moreover, they pose particular development, macroeconomic and cross-border challenges for emerging market and developing economies. It remains to be seen whether stablecoins can offer a decisive comparative advantage over fast-moving fintech innovations in these countries that are built on or improve the existing financial plumbing.

Drechsel, McLeay, Tenreyro, 16 January 2020

Macroeconomic volatility in commodity-exporting economies is closely tied to fluctuations in international commodity prices. This column studies optimal policy for commodity exporters in a small open economy framework that includes a key role for financial conditions. A positive commodity price shock leads to an inefficient boom, with inflation rising and output increasing relative to its efficient level. The optimal policy lets the exchange rate appreciate and raises interest rates, with a larger appreciation required the greater the loosening in borrowing conditions. The model suggests that exchange-rate pegs are highly suboptimal for commodity exporters, exacerbating inefficient swings in commodity production. Given the prevalence of managed exchange-rate regimes in emerging and developing commodity-exporting economies, the authors discuss the practical challenges that might justify such frameworks.

Kaeseberg, 15 January 2020

EU competition policy appears not sufficiently equipped to deal with the challenges recently raised by Chinese state capitalism. This column discusses some of the gaps in the EU’s economic toolbox, and identifies several strategic issues that will need to be addressed as the Commission looks to close these gaps with the introduction of a ‘level playing field instrument’.

Samarina, Apokoritis, 15 January 2020

Monetary policy frameworks have evolved since the global crisis. The column investigates the changes for 14 advanced economy central banks. Banks are defining lower, more narrow inflation targets. Transparency and commitment have been enhanced, and the monetary policy toolkit has been expanded.

Brunnermeier, Landau, 15 January 2020

Central banks have been called on to contribute to fighting climate change. This column presents a framework for thinking about the issue and identifies some major trade-offs and choices. It argues that climate should be a major part of risk assessments and that capital ratios could be used in a proactive way by applying favourable regimes to ‘green’ loans and investments. It also suggests that central banks may want to take several climate change-related aspects into account when designing and implementing monetary policies. However, the central bank should retain absolute discretion to interrupt any action if its first-priority objective – price stability – were to be compromised.

Kondo, 14 January 2020

Increasing productivity is a top priority challenge for the Japanese economy under the current population decline, and the idea of raising the minimum wage in order to spur productivity growth has piqued interest among policymakers. This column suggests two ways in which firms may respond to a minimum wage hike: some may carry out reforms to increase productivity in response to the hike, while other less-productive firms may exit the market. The overall effect on productivity will vary across countries and firms, since the relative strength of these two effects depends on a country’s firms’ characteristics and market structure.

Ongena, Auer, 14 January 2020

Targeted macroprudential policies may spill across sectors, but this does not mean that they are ineffective. This column shows how the effects of a countercyclical capital buffer designed to curb house price growth in Switzerland spilled over into commercial lending. But a model that matches the uncovered spillovers in volumes and interest rates shows that they by no means undermine the rationale for focusing policy measures on specific sectors. On the contrary, it suggests that regulators can avail themselves of this new tool to increase the overall resilience of banks

Galofré Vilà, 13 January 2020

Economic history is a thriving subset of the field. This column uses network analysis to review the development of the discipline over the last 40 years. It illustrates how economic historians are interconnected through their research, identifies which scholars are the most cited by their peers, and reveals the central debates enlivening the discipline. It also shows that the rapid increase in the number of economic history publications since 2000 has been driven more by research at universities in continental Europe than by those in the US or UK.

Sorsa, Arnold, Garda, 13 January 2020

Economic growth in Latin America has been persistently lower and more erratic than the emerging economies of Asia, largely due to low productivity borne out of both weak competition and a large informal economy. This column analyses the various factors that have caused these conditions to exist in several Latin American countries, and how policies to counteract them have fared. For significant progress, a detailed strategy of simplifying regulations, easing administrative burdens, encouraging market entry, and reducing trade barriers is required to formalise workers and encourage market competition.

Suesse, Wolf, 13 January 2020

There was a rapid spread of credit cooperatives in rural 19th-century Germany providing small-scale savings and loan services to previously unbanked people. This column shows how these cooperatives helped shift farm investment from grains to potentially profitable but more capital-intensive products, such as the production of meat and dairy. In cases like this, changes in the sector of economic activity are a better metric for the impact of microfinance than comparing income pre- and post-credit.

Buti, 12 January 2020

In December 2019, Marco Buti left the position of Director General for Economic and Financial Affairs at the European Commission at the end of a rough journey through the crisis and its aftermath. In this column, he draws the main lessons out of five key moments in the crisis for the completion of EMU and the appropriate policy mix in the euro area.

Goulas, Megalokonomou, 11 January 2020

Exam scheduling may contribute to performance gaps between subjects, between males and females, as well as between students with differing performance histories. Using lottery-generated variation in exam timing at a Greek public high school, this column identifies three distinct channels through which exam scheduling can influence test performance. The simulation experiments show that the higher the number of exams taken, the higher the potential benefit from optimising exams scheduling.

Augustin, Chernov, Schmid, Song, 10 January 2020

Benchmark interest rates, such as LIBOR or EFFR, not only serve as indicators of the monetary policy stance but also as reference rates for the multi-trillion interest rate derivatives and mortgage markets. Since the Global Crisis, these interest rates have followed a puzzling pattern relative to the US Treasury yields, known as negative swap rates. This column describes the pattern, explains why it is puzzling, and argues that the emergence of US default risk can naturally explain negative swap spreads. 

Begg, Miles, 10 January 2020

In 2020, the UK and the EU will try to strike a post-Brexit deal in financial services. At the SUERF conference in Amsterdam, David Miles and Iain Begg explain to Tim Phillips what's at stake in the negotiations, and who would suffer most if there's no deal.

Matějka, Tabellini, 10 January 2020

Digital technologies provide a vast and accessible supply of information for voters. And yet, research suggests that the American electorate is no better informed than it was in the late 1980s. This column argues that the digital revolution has changed the distribution of news and data, increasing informational asymmetries across issues, amplifying the influence of extremist voters, and diverting attention away from important but non-controversial policies. 

Egger, Zhu, 09 January 2020

The US and China have been exchanging threats and imposing tariffs in a ‘trade war’ since early 2018. Sound statistical and holistic economic analysis of the trade dispute’s consequences is difficult due to data limitations. This column scrutinises global stock market responses to assess the effects of the trade war and finds that, on average, the US and Chinese tariffs have directly hurt targeted firms/sectors abroad as intended, but they have also hurt firms at home. It also reveals unintended effects on third parties, mediated by global value chain interdependencies.

Card, DellaVigna, Funk, Iriberri, 08 January 2020

Women economists are under-represented across the discipline, from university departments to academic conferences and publishing houses. This column focuses on the editorial process and asks whether the referees and editors of four leading economics journals made gender-neutral publishing decisions between 2003 and 2013. The findings suggest that the gender of the referee does not affect the valuation of a paper and that editors are gender-neutral in valuing advice from referees. However, papers written by women appear to face a higher bar in the quest to be published.

Heiland, Moxnes, Ulltveit-Moe, Zi, 07 January 2020

Evidence on the structure of the global container shipping network, an essential determinant of the costs of trade, is scarce. This column uses satellite data to document salient features of the network, and the expansion of the Panama Canal as a natural experiment to examine the impact this improvement to one link of the network had on worldwide trade. The analysis suggests that the expansion of the canal increased world real income by $20 billion. 

Kimura, 07 January 2020

While national governments are already implementing various economic policies related to data flows in the real world, there is not yet a consensus on how economists should approach the topic. This column outlines a framework recently proposed by the T20 Task Force on Trade, Investment, and Globalization that classifies data flow policy into five categories and allows the appropriateness of policy from the viewpoint of economics to be discussed. As a result, it becomes possible to achieve policy harmonisation in some areas and to identify others where harmonisation cannot easily be achieved.

Artuc, Porto, Rijkers, 06 January 2020

Questions about who benefits from free trade – and at what cost – have resurfaced as part of the backlash against globalisation. This column uses data from 54 low- and middle-income countries to show that in a majority of cases, trade liberalisation increases both incomes and inequality. Most of these trade-offs resolve in favour of liberalisation; despite exacerbating income disparities, trade liberalisation creates overall social welfare gains. 

Saka, 06 January 2020

European banks have been criticised for holding too much domestic government debt during the recent euro area crisis, intensifying the doom loop between sovereign and bank credit risks. This column deviates from previous research that focused on 'bad' reasons for holding sovereign debt, and points to a 'good' reason: an informational advantage that particular banks have regarding sovereigns. This seems to have had a role in the fragmentation of European government bond markets. 

Hombert, Matray, 05 January 2020

High salaries and the opportunity to work with exciting new technologies attract many graduates to jobs in the tech sector. This column examines the long-term earnings of French high-skilled workers who started their career during the last tech boom in the late 1990s. The results point to an ‘ICT boom cohort discount’, with high-skilled workers who started in the sector ending up earning almost 7% less than workers who started careers outside of ICT. One potential explanation for this is that human capital accumulated by high-skilled workers in a booming tech sector depreciates faster than usual because of accelerating technological change.

Oesch, Piccitto, 04 January 2020

The consensus view in economics is that labour markets are polarising as jobs are created in high-skilled and low-skilled occupations but disappear in mid-skilled ones. This column shows empirical evidence against the polarisation theory in Western Europe. Between 1992 and 2015, job growth in Germany, Spain, Sweden, and the UK was strongest in top-end occupations and, except in the UK, weakest in low-end occupations. 

Cahuc, Carcillo, Minea, Valfort, 03 January 2020

Correspondence studies are often used to detect discrimination on the part of recruiters, but they do not inform us about decisions at the interview and job-offer stages. This column describes how a correspondence study suggests that individuals of North African origin are strongly discriminated against in the French private sector, while they are treated equally in the public sector. However, survey results indicate that both public and private sector employers express discriminatory preferences and beliefs against North African candidates, and wages of young unskilled North African males are lower than those of their French compatriots in both sectors. The findings suggest that correspondence studies should be complemented with other investigation methods.

Hoekman, Shepherd, 03 January 2020

Data weaknesses hamper analysis of how policies towards imports and exports of services, foreign direct investment and, more generally, regulation affects the operation of services sectors. Based on recently released regulatory policy data for 2016, this column uses machine learning methods to recreate to a high degree of accuracy the OECD’s Services Trade Restrictiveness Index to generate new estimates of services trade barriers for 23 developing countries. The analysis confirms that services policies are typically much more restrictive than tariffs on imports of goods, in particular in professional services and telecommunications. Developing countries tend to have higher services trade restrictions, but less so than has been found in research using data for the late 2000s.

Aghion, Bergeaud, Blundell, Griffith, 02 January 2020

A growing literature emphasises that firm heterogeneity plays a large role in explaining wage differences across workers. This column highlights one channel through which firm features feed through into the wages of workers in low-skilled occupations, namely, the interplay between a firm's innovativeness and the complementarity between the (soft) skills of workers in low-skilled occupations and the firm's other assets. It shows that more R&D-intensive firms pay higher wages on average, and in particular workers in certain low-skilled occupations benefit considerably from working in more R&D-intensive firms.

Davis, Taylor, 02 January 2020

Investor experience and academic research since the Global Crisis reflects a growing realisation that credit conditions can affect future macroeconomic outcomes. This column investigates whether credit booms throughout history have had any explanatory power to account for future asset class returns. It finds that credit booms tend to systematically predict poor returns in the near future for equities in absolute terms, and relative to bonds. An investor who had tilted their portfolio allocations based on a credit boom signal would have been able to improve portfolio performance. The contribution of the credit boom signal is meaningful when compared to other well-established signals such as momentum and value.

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