MARCH 11 2011

Marcus Kappler, Helmut Reisen, Moritz Schularick, Edouard Turkisch: Half a century of large currency appreciations: Did they reduce imbalances and output? If China only allowed its currency to appreciate, the global economy would rebalance and stabilise – or so the argument goes. This column studies the historical record of large exchange-rate revaluations. It supports the idea that currency appreciations have an impact on the current account but argues that this can come at a cost – the reduction in exports risks putting the brakes on global growth.

ECO, OECD: The Impact of Structural Reforms on Current Account Imbalances. Global current account imbalances widened markedly in the years preceding the global economic crisis. Although the crisis brought some reversal to this trend, imbalances remain large in many countries. New empirical analysis by the OECD has examined the potential contribution of structural reforms to reducing current account imbalances.

The analysis shows that structural reforms aimed at boosting economic growth can have more or less persistent side effects on current accounts. These arise because structural policies influence saving and investment of households, firms and governments. In turn, the economy-wide gap between saving and investment equals the current account balance.

Dani Rodrik's weblog: More on growth-reducing structural change. The African countries in our sample (Ethiopia, Ghana, Kenya, Malawi, Mauritius, Nigeria, Senegal, South Africa, and Zambia) have experienced even more growth-reducing structural change than the Latin American countries. This runs totally against our expectations for a set of countries at such low levels of development (for the most part), where a Lewis-style dual economy growth dynamic ought to be in place. The chart makes clear that the bulk of the difference in economic performance since 1990 between Asia, on the one hand, and Latin America and Africa, on the other, is accounted for by differences in patterns of structural change. Asian countries have, on average, experienced growth-enhancing structural change; not so the others.

Paul Krugman, NYT: Degrees and Dollars. Most of the manual labor still being done in our economy seems to be of the kind that’s hard to automate. Notably, with production workers in manufacturing down to about 6 percent of U.S. employment, there aren’t many assembly-line jobs left to lose. Meanwhile, quite a lot of white-collar work currently carried out by well-educated, relatively well-paid workers may soon be computerized. Roombas are cute, but robot janitors are a long way off; computerized legal research and computer-aided medical diagnosis are already here. And research by my Princeton colleagues Alan Blinder and Alan Krueger suggests that high-wage jobs performed by highly educated workers are, if anything, more “offshorable” than jobs done by low-paid, less-educated workers. If they’re right, growing international trade in services will further hollow out the U.S. job market.

Cahuc, Pierre, Carcillo, Stéphane,  Ecole Polytechnique: The Detaxation of Overtime Hours: Lessons from the French Experiment. In October 2007 France introduced an exemption on the income tax and social security contributions that applied to wages received for hours worked overtime. The goal of the policy was to increase the number of hours worked. This article shows that this reform has had no significant impact on hours worked. Conversely, it has had a positive impact on the overtime hours declared by highly qualified wage-earners, who have opportunities to manipulate the overtime hours they declare in order to optimize their tax situation, since the hours they work are difficult to verify.

Monique de Haan, Edwin Leuven, Hessel Oosterbeek, IZA: Scale Economies Can Offset the Benefits of Competition: Evidence from a School Consolidation Reform in a Universal Voucher System. A large school consolidation reform in the Netherlands changed minimum school size rules underlying public funding. The supply of schools decreased by 15 percent, but this varied considerably across municipalities. We find that reducing the number of schools by 10 percent increases pupils' achievement by 3 percent of a standard deviation. A reduction in the supply of schools implies, for a given number of pupils, an increase in average school size. We present evidence that in our context scale economies dominated the effects of choice and competition. This points to an often ignored trade-off between scale and competition.

Andreas Peichl, Nico Pestel, Sebastian Siegloch, IZA: The Politicians' Wage Gap: Insights from German Members of Parliament. Using a unique dataset of German members of parliament with information on total earnings including outside income, this paper analyzes the politicians’ wage gap (PWG). After controlling for observable characteristics as well as accounting for selection into politics, we find a positive PWG which is statistically and economically significant. It amounts to 40-60% compared to citizens with an executive position. Hence, we show that the widely held claim that politicians would earn more in the private sector is not confirmed by our data. Our findings are robust with respect to potential unobserved confounders. We further show that the PWG exceeds campaigning costs and cannot be justified by extraordinary workload. Hence, our results suggest that part of the PWG can be interpreted as rent extraction. This calls for a reform of the regulation of outside earnings, which account for a sizeable share of the wage premium.

Aida Caldera Sánchez1, Dan Andrews, OECD: To Move or not to Move: What Drives Residential Mobility Rates in the OECD? Based on cross-sectional household data for 25 countries, the results suggest that differences in residential mobility across countries are partially related to differences in public policies. After controlling for household and country-specific characteristics, residential mobility is higher in countries with lower transaction costs, more responsive housing supply, lower rent controls and tenant protection. Residential mobility tends also to be higher in environments with greater access to credit, suggesting that financial deregulation – by lowering borrowing costs and facilitating access to mortgage finance – facilitates mobility. This cross-country evidence is supported by city and state-level evidence for the United States, which also highlights the potential risks that high leverage rates pose to residential mobility.

Roland G. Fryer, NBER:  Teacher Incentives and Student Achievement: Evidence from New York City Public Schools. Financial incentives for teachers to increase student performance is an increasingly popular education policy around the world.  This paper describes a school-based randomized trial in over two-hundred New York City public schools designed to better understand the impact of teacher incentives on student achievement.  I find no evidence that teacher incentives increase student performance, attendance, or graduation, nor do I find any evidence that the incentives change student or teacher behavior.  If anything, teacher incentives may decrease student achievement, especially in larger schools.  The paper concludes with a speculative discussion of theories that may explain these stark results.

Alan Barrett, Bertrand Maitre, IZA: Immigrant Welfare Receipt across Europe. In this paper, we assess whether immigrants are more likely to receive welfare payments relative to natives across a range of European countries. Using the European Union Survey on Income and Living Conditions for 2007, we find very little evidence that immigrants are indeed more likely to receive such payments when all payments are considered together. This is true whether we use raw data or regression analysis in which we control for relevant characteristics. We do find evidence of higher rates of poverty among immigrants. When combined with the results on welfare receipt, this raises a question over the effectiveness of welfare systems in protecting immigrants from poverty across Europe.

Adam Gopnik, The New Yorker: The Information. How the Internet gets inside us. A Critic at Large. That the reality of machines can outpace the imagination of magic, and in so short a time, does tend to lend weight to the claim that the technological shifts in communication we’re living with are unprecedented. It isn’t just that we’ve lived one technological revolution among many; it’s that our technological revolution is the big social revolution that we live with. The past twenty years have seen a revolution less in morals, which have remained mostly static, than in means: you could already say “fuck” on HBO back in the eighties; the change has been our ability to tweet or IM or text it. The set subject of our novelists is information; the set obsession of our dons is what it does to our intelligence.

Mirjam Tuk, APS: Full Bladder, Better Decisions? Controlling Your Bladder Decreases Impulsive Choices. In one experiment, participants either drank five cups of water (about 750 milliliters), or took small sips of water from five separate cups. Then, after about 40 minutes—the amount of time it takes for water to reach the bladder—the researchers assessed participants’ self-control. Participants were asked to make eight choices; each was between receiving a small, but immediate, reward and a larger, but delayed, reward. For example, they could choose to receive either $16 tomorrow or $30 in 35 days. The researchers found that the people with full bladders were better at holding out for the larger reward later.