CEPR News In focus this week: 16 March 16 Mar 2023 This weekly press briefing highlights some of the latest research reports, discussion papers and other publications from CEPR. It also features some of the latest columns on VoxEU, as well as new blogs/reviews, audio interviews and short films.
WORKERS’ FEAR OF AUTOMATION A study by Marta Golin and Christopher Rauh finds that fear of automation leads workers to demand higher taxation and more redistribution. Workers are also likely to unionise to protect their employment rather than adopt new skills or switch occupation. The findings highlight the pressure that automation may put on public budgets and provide new insights into how technological advancements may alter the political landscape.
PROSPECTS FOR EURO AREA INFLATION IN 2023: Views of leading European economists Inflation in the EU reached an all-time high of 10.6% in October 2022, declining to 8.5% in January 2023. The February 2023 CfM-CEPR survey asked its European panel whether inflation has peaked in the euro area and its implications for ECB policy. A large majority of the panel think that inflation has already passed its peak, but half think the ECB’s rate will need to rise above the 3.5% peak currently forecast by market participants to support the rate of inflation reduction. Consistent with this, more than a third of the panel thinks that the ECB’s current trajectory will have interest rates too low to curb inflation.
EUROPE'S LAG IN TOP TECH SECTORS LINKED TO DIGITAL INFRASTRUCTURE QUALITY, IMPACTING FIRM PERFORMANCE AND RESILIENCE European firms represent 20% of global R&D and innovation, but they are less present in the top tech sectors such as electronics, software and computer services, with many of the top players located in the US and China. Writing at VoxEU, Péter Harasztosi, Désirée Rückert and Christoph Weiss discuss how innovation in digital technologies fosters the use of digital technologies by firms and analyses the impact of digital infrastructure quality on firms’ digital uptake, illustrating the concentration of digital firms in regions with better digital infrastructure. The authors argue that this has strong implications for firm performance and resilience.
SKILLED IMMIGRATION IMPROVES TASK ALLOCATION AND BOOSTS FIRM INNOVATION: Evidence from France Analysing the impact of skilled migrants on French firms from 1995 to 2010, a study by Anna Maria Mayda, Gianluca Orefice and Gianluca Santoni finds that the arrival of skilled immigrants drove skilled French workers towards language-intensive, managerial tasks, while foreign workers specialised in technical, research-oriented labour. The result of this task specialisation was increased innovation and patent activity at both the district and firm level. Skilled migration may be not only economically beneficial, but politically feasible as well.
GERMAN APPRENTICESHIP TRAINING LEADS TO 15% HIGHER WAGES, PERSISTENT GROWTH, BETTER JOB PROSPECTS, AND REDUCED LAYOFFS Comparing wage growth for German workers who enrolled in apprenticeship training after secondary school with that for workers who entered the labour market directly, a study by Jerome Adda and Christian Dustmann finds that, twenty years later, the wages of workers who went through an apprenticeship are 15% higher than those of the untrained. Apprenticeship training is linked to persistent wage growth, access to better jobs later in the lifecycle, reduction in layoffs, and improved hiring prospects. While apprenticeship training is costly for firms and taxpayers, it provides significant returns to the individual and society.
REGIONAL UNIVERSITIES RAISE SOCIAL MOBILITY IN THEIR LOCAL COMMUNITIES: Evidence from the US Using IRS and Census data on outcomes for children born between 1978 and 1983, a study by Greg Howard and Russell Weinstein finds that regional universities increase the share of children in the county who obtain at least a four-year degree, at least some college, and also the high school graduation rate. It also raises the share of children in the county who are employed in their mid-thirties as well as their income percentiles.
MILITARY CONSCRIPTION MAY UNDERMINE TRUST IN DEMOCRATIC INSTITUTIONS Military conscription has been shown to build a shared national identity and instil patriotism. Yet, using data from 15 European countries that suspended military conscription in the last century, a study by Vincenzo Bove, Riccardo Di Leo and Marco Giani finds that men from conscripted generations show less trust in democratic institutions than those exempted from the draft. Consistent with a ‘civil–military gap’, draftees develop a communal and negative attitude towards their country’s institutions, weakening the relationship between the citizen and the state.
MONETARY POLICIES WITH FEWER SUBSIDIES FOR BANKS: A two-tier system of minimum reserve requirements The ECB subsidises commercial banks massively against inflation, which constitutes a more than €1 trillion transfer of money from taxpayers to private banks over the next ten years. Writing at VoxEU, Paul De Grauwe and Yuemei Ji argues the subsidies are exorbitant and proposes a two-tier system of non-interest-bearing minimum reserve requirements on part of bank reserves. This will reduce the excessive subsidies to banks while maintaining the current operating procedure used by the central bank. And alleviate the burden on taxpayers and avoid making the ECB's operating procedure unsustainable.
CHINA DOES NOT PICK – OR CREATE – WINNERS WHEN GIVING SUBSIDIES TO FIRMS A new study by Lee Branstetter, Guangwei Li and Mengjia Ren suggests that the Chinese government's allocation of subsidies does not consistently lead to increased productivity for listed firms. The research found that subsidies were negatively correlated with firms' ex-ante productivity and had a negative impact on ex-post productivity growth. The study suggests that government intervention may not always result in positive outcomes for businesses.