This week from CEPR: June 20th

Thursday, June 20, 2019

Highlights from some of the latest research reports published in the Centre for Economic Policy Research (CEPR) network’s long-running series of discussion papers, as well as some other recent CEPR publications.

Also, links to some of the latest columns on Vox, the Centre’s policy portal, which provides ‘research-based policy analysis and commentary from leading economists’.

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    • NEW TECHNOLOGY AND EMPLOYMENT: Evidence of technology-induced job losses and gains across 30 industries in 10 advanced countries
      Who Is Afraid of Machines?
      Sotiris Blanas, Gino Gancia and Sang Yoon (Tim) Lee
      CEPR DP No. 13802 16 June 2019

    Since the early 1980s, computer software and industrial robots have reduced the demand for low and medium-skill workers, the young and women, especially in manufacturing industries. But these technologies have raised the demand for high-skill workers, older workers and men, especially in service industries.
     
    These are among the findings of new CEPR analysis of data on 10 high-income countries and 30 industries, which roughly span their entire economies, with annual observations over the period from 1982 to 2005.
     
    The results for women seem puzzling: even though women’s labour market outcomes have been improving over time, technology seems to have had a negative impact on their employment and relative incomes. The key to reconciling these facts lies in women’s response over the medium run.
     
    Robots did not replace women indiscriminately; rather, only those of lower levels of skill were replaced. At the same time, women responded by acquiring higher levels of skill, and at a faster rate than men. In similar vein, the positive effect of robots on men’s outcomes is also because men were traditionally more educated.
     
    The researchers highlight the importance of distinguishing between technologies that replace humans, such as robots and software, and those that are used by humans, such as information and communication technologies (ICT). The results suggest that all workers can enjoy the improvements in technology by acquiring new skills that are complementary to machines, rather than remaining in jobs that are destroyed by them.

    Figure A1: Change in Employment Shares by Gender from 1980 to 2010 

    Notes: Change in within-gender employment shares between 1980 and 2010 in the U.S., across 11 1-digit occupations: Managers+Self-employed (M/SE), Managerial Support (MSpt), Professionals (Pro), Mining Occupations (Mine), Mechanics (Mech), Technicians (Tech), Sales, Transportation (Trans), Machine Operators (Mach), Administrative Occupations (Admin), and Low-skill Services (LServ). 


     

    Dynastic family-owned firms have worse management practices, but only if they are run by family CEOs. That is one of the findings of CEPR research on the performance of ‘dynastic’ family-owned firms in Latin America and Europe, and why those led by family bosses adopt fewer structured management practices.
     
    The authors note that although family firms are widely praised as the ‘backbone of the economy’, their productivity is often hampered by weak management. It is therefore crucial to understand the barriers to investment in better management practices within family firms.
     
    One particular constraint explored in this study is the ‘reputation costs’ for family firms of firing workers, which may deter them from adopting better management practices. These firms could hire professional CEOs, but there are often institutional constraints, particularly in emerging economies.

    Figure 1: Share of family or founder firms across the world, manufacturing

    Notes: Circle sizes represent median firm size. Data from the World Management Survey (2004-2014). Firms are classified as 'family owned' if the family members of the founding family own over 25% of the share 


     

    Emissions-cheating diesel cars, which secretly polluted up to 150 times as much as gasoline cars, seriously damaged the health of infants and children in the United States, according to a new CEPR study.

    Analysing data for the period from 2008 to 2015 and using the universe of vehicle registrations, the researchers demonstrate that a 10% cheating-induced increase in car exhaust increased rates of low birth weight and acute asthma attacks among children by 1.9% and 8%, respectively. These health impacts occurred at all pollution levels and across the entire socioeconomic spectrum.

    Figure 5: Binned scatter plots of birth weight and low birth weight rates against the share of cheating diesel, contolling for country and year fixed effects

     

    Notes: Cheating diesel cars are make-model-model years exposed in the emissions cheating scandals



    LEARNING FROM NEW EXPERIENCES: Experimental evidence on overcoming our naiveté about self-control

    Yves Le Yaouanq, Peter Schwardmann
    10 June 2019

    Experimenting with different work arrangements, dietary choices or exercise regimens is likely to be valuable in understanding what makes us more productive, healthier and happier. But according to research by Yves Le Yaouanq and Peter Schwardmann, we underestimate how much we can learn about ourselves from such experiences.

    They note that insufficient exertion of self-control hinders us from achieving our intended objectives. We need to learn from our past lapses but it is unclear whether we do and thereby become less naive about our self-control abilities. The new study provides experimental evidence that people learn well from their past effort on a task and are able to transport what they learn to new environments – but they seem to under-appreciate how much self-knowledge the experience with a task will provide.

     

    JOB PROTECTION IN FRANCE: New evidence of a hit to employment

    Pierre Cahuc, Franck Malherbet, Julien Prat
    11 June 2019

    Job protection is strongly detrimental to employment in the French context, according to research by Pierre Cahuc, Franck Malherbet and Julien Prat. Their study shows that the ‘anticipation effect’ – firms’ concerns about the future costs of laying off workers – not only plays a key role in reducing job creation, but also increases job destruction among low-skilled workers, an effect that is amplified by the presence of the minimum wage.

     

    REGULATING BANK CAPITAL: The case for market-based stress tests

    John Vickers
    14 June 2019

    For major banks with price-to-book ratios less than one, stress tests based on market values should be run and published by regulators alongside existing stress test results. That is the central message of a Vox column by John Vickers, Warden of All Souls College, Oxford, and chair of the Independent Commission on Banking, 2010-11.

    He notes that the stability of the financial system depends on the capital of banks and other financial institutions. But the measurement of bank capital depends on regulatory accounting methods, which, as events a decade ago showed dramatically, do not always reflect economic realities in a timely fashion. Sir John argues that market-based measures should play a greater role in regulatory assessment than is current practice, in particular in stress tests.

     

    JAW, JAW NOT WAR, WAR: Prioritising reform options for the World Trade Organization

    Simon Evenett, Johannes Fritz
    13 June 2019

    Restoring the world trading system to its pre-crisis state means reforming the World Trade Organization (WTO), according to Simon Evenett and Johannes Fritz writing at Vox – and that should be a top priority for the G20 summit in Osaka in late June.

    The researchers note that the summit risks being overshadowed by the US-China trade war, but that that needn’t happen: last year, G20 leaders called for reports on options to revive the WTO and are expected to discuss them in Osaka. The Vox column introduces the latest Global Trade Alert report, which shows that current global trade rules don’t deliver and proposes a way forward.

     

    THE 2018 TRADE WAR AND THE END OF DISPUTE SETTLEMENT AS WE KNEW IT

    Chad Bown
    13 June 2019

    For more than 20 years, the dispute settlement system of the World Trade Organization (WTO) provided an orderly process for countries to resolve trade grievances and keep cooperation going. But in 2018, something broke down.

    In a contribution to the recent Vox eBook Trade War: The Clash of Economic Systems Endangering Global Prosperity, Chad Bown explores why the inability to resolve underlying problems with the WTO itself deserves some of the blame. He derives some potential lessons for a future system of dispute settlement.

     

    PRINCIPLES OF INDUSTRIAL POLICY: Lessons from the Asian miracles

    Reda Cherif, Fuad Hasanov
    16 June 2019


     

    Successful industrial policy uses state intervention for early entry into sophisticated sectors, strong export orientation and fierce competition with strict accountability. That is the conclusion of IMF research by Reda Cherif and Fuad Hasanov on lessons from the ‘Asian miracles’ for achieving sustainable growth.

    The Asian miracles and their industrial policies are often considered as statistical accidents that cannot be replicated. This study argues that we can learn more about sustained growth from these miracles than from the large pool of failures. It concludes that industrial policy is instrumental in achieving sustained growth. 

     

    HUMAN DEVELOPMENT IN THE AGE OF GLOBALISATION: A new index, 1870-2015

    Leandro de la Escosura
    15 June 2019

    A new index of human development over the past 150 years combines measures of achievements in health, education, material living standards and political freedom. The work by economic historian Leandro de la Escosura shows that world human development has steadily improved over time, although advances have been unevenly distributed across world regions.


     

    TECHNOLOGY DIFFUSION BOOSTS GLOBAL LIVING STANDARDS

    Johannes Eugster, Giang Ho, Florence Jaumotte, Roberto Piazza
    12 June 2019

    Globalisation has intensified the international diffusion of technology, raising global living standards, according to new IMF analysis by Johannes Eugster, Giang Ho, Florence Jaumotte and Roberto Piazza. What’s more, growing competition from emerging market economies may lead to more innovation, even in advanced economies.

    The analysis shows how technology diffusion to emerging markets helps to share growth potential across countries and to lift global living standards. Using a global patent citation dataset, the researchers estimate the magnitude and impact of international knowledge and technology diffusion, as well as the role that globalisation has played. In emerging markets, knowledge flows have increased innovation and productivity.  

     

    JAPAN’S UNCONVENTIONAL MONETARY POLICY: The impact of the Bank of Japan’s exchange-traded fund purchases

    Tatsuyoshi Okimoto
    13 June 2019

    New research by Tatsuyoshi Okimoto assesses the Bank of Japan’s exchange-traded fund purchasing programme, which has been repeatedly expanded in recent years. The results show that purchases have achieved some positive results, propping up stock prices but also increasing real output and inflation. But, the analysis concludes, given the increased risks that the Bank faces as its purchases have grown, the time to unwind has come.  


     

    GROWING USE OF LOCAL CURRENCIES IN JAPANESE TRADE WITH ASIAN COUNTRIES

    Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu
    10 June 2019

    New research examining the choice of invoicing currency for Japanese exports to other Asian countries finds that the previously dominant use of dollars rather than yen is now shifting to the currencies of the destination markets.

    The study by Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato and Junko Shimizu notes that Japan exports to neither advanced nor Asian countries in yen, as would be expected. Using questionnaire data, they show why Japanese exporters tend to choose destination currencies in their exports to advanced countries and why the US dollar, rather than the yen, is more often used in their exports to Asia. They also present new evidence that the share of local currency has recently increased markedly. 


     

    BREXIT: What would Ricardo do?

    Peter Neary interviewed by Tim Phillips, 14 June 2019

    David Ricardo was the first economist to think rigorously about international trade, and his theory of comparative advantage has stood the test of time. So why do so many politicians ignore it? And what would he do about Brexit? Peter Neary of the University of Oxford talks to Tim Phillips. 



     

    WHY FORECASTS DON’T WORK

    John Kay, 13 June 2019

    John Kay of St John’s College, Oxford explains why the scope for applying probabilistic type reasoning to economics is limited. Probabilistic statements derived from models should be based on compounding the probability from the model with the probability that the model itself is a correct representation of the world. Certain forecasts are just not possible.