SEPTEMBER 18 2015

Sebastien Buttet, Udayan Roy: Macroeconomic Stabilization When the Natural Real Interest Rate Is Falling. The authors modify the Dynamic Aggregate Demand-Dynamic Aggregate Supply model in Mankiw's widely used intermediate macroeconomics textbook to discuss monetary policy when the natural real interest rate is falling over time. Their results highlight a new role for the central bank's inflation target as a tool of macroeconomic stabilization. They show that even when the zero lower bound is not binding, a prudent central bank must match every decrease in the natural real interest rate with an equal increase in the target rate of inflation in order to stabilize the risk of the economy falling into a deflationary spiral, which is an acute case of simultaneously falling output and inflation in which the economy's self-correcting forces are inactive.

Richard Freeman et al, Center for American progress: Bargaining for the American Dream. What Unions do for Mobility. Areas with higher union membership demonstrate more mobility for lowincome children. Using Chetty and others’ data, we find that low-income children rise higher in the income rankings when they grow up in areas with high-union membership. A 10 percentage point increase in a geographic area’s union membership is associated with low-income children ranking 1.3 percentile points higher in the national income distribution. This relationship between unions and the mobility of low-income children is at least as strong as the relationship between mobility and high school dropout rates—a factor that is generally recognized as one of the most important correlates of economic mobility. Indeed, union density is one of the strongest predictors of an area’s mobility.

David Autor, NBER: Polanyi's Paradox and the Shape of Employment Growth. I begin by sketching the historical thinking about machine displacement of human labor, and then consider the contemporary incarnation of this displacement--labor market polarization, meaning the simultaneous growth of high-education, high-wage and low-education, low-wages jobs--a manifestation of Polanyi's paradox. I discuss both the explanatory power of the polarization phenomenon and some key puzzles that confront it. I then reflect on how recent advances in artificial intelligence and robotics should shape our thinking about the likely trajectory of occupational change and employment growth. A key observation of the paper is that journalists and expert commentators overstate the extent of machine substitution for human labor and ignore the strong complementarities. The challenges to substituting machines for workers in tasks requiring adaptability, common sense, and creativity remain immense. Contemporary computer science seeks to overcome Polanyi's paradox by building machines that learn from human examples, thus inferring the rules that we tacitly apply but do not explicitly understand. David Autor: Automation – opportunities and challenges (video).

Guy Michaels, Georg Graetz, VOX: Estimating the impact of robots on productivity and employment. Robots may be dangerous not only to the action heroes of cinema, but also to the average manufacturing worker. This column analyses the effect robots have had in 14 industries across 17 developed countries from 1993 to 2007. Industrial robots increase labour productivity, total factor productivity, and wages. While they don’t significantly change total hours worked, they may be a threat to low- and middle-skilled workers.

William D. Nordhaus, NBER: Are We Approaching an Economic Singularity? Information Technology and the Future of Economic Growth. What are the prospects for long-run economic growth? The present study looks at a recently launched hypothesis, which I label Singularity. The idea here is that rapid growth in computation and artificial intelligence will cross some boundary or Singularity after which economic growth will accelerate sharply as an ever-accelerating pace of improvements cascade through the economy. The paper develops a growth model that features Singularity and presents several tests of whether we are rapidly approaching Singularity. The key question for Singularity is the substitutability between information and conventional inputs. The tests suggest that the Singularity is not near.

Claire Cain Miller, The Upshot: Restaurant of the Future? Service With an Impersonal Touch. At this restaurant, customers order, pay and receive their food and never interact with a person. The restaurant, Eatsa, the first outlet in a company with national ambitions, is almost fully automated. There are no waiters or even an order taker behind a counter. There is no counter. There are unseen people helping to prepare the food, but there are plans to fully automate that process, too, if it can be done less expensively than employing people.

Francisco J. Buera, Joseph P. Kaboski, Richard Rogerson, NBER: Skill Biased Structural Change. We document for a broad panel of advanced economies that increases in GDP per capita are associated with a shift in the composition of value added to sectors that are intensive in high-skill labor. It follows that further development in these economies leads to an increase in the relative demand for skilled labor. We develop a two-sector model of this process and use it to assess the contribution of this process of skill-biased structural change to the rise of the skill premium in the US, and a broad panel of advanced economies, over the period 1977 to 2005. We find that these compositional demands account for between 25 and 30% of the overall increase of the skill premium due to technical change.

Roland Fryer: Understanding the Sources of Inequality in Schools, Health Care, and Environment. Roland Fryer of Harvard University and the NBER, winner of this year’s John Bates Clark Medal for outstanding work by a young economist, outlines some of the important sources of inequality and key questions driving economic analysis of the phenomenon.

Lyndsey Pereira-Brereton. BoE: Izzy Whizzy let’s get Vizzy – The magic of using visualisation to analyse and understand data. This blog draws on some examples to highlight how different visualisation techniques help not only the communication of data, but more importantly, how it can aid data exploration, analysis and understanding. Visualisation is a powerful technique because our brains are naturally wired to process information visually. One of the best examples of this power is Anscombe’s Quartet, which comprises of 4 sets of data that have the same mean, variance, correlation, and linear regression. However, it is only when they are graphed that we immediately see very different patterns, and therefore interpretations, of the data:

Sara G. Miller, Livescience: The Best Country to Live in If You're Over 60. According to the Global Age Watch Index 2015, which measures the social and economic wellbeing of older people across the globe, Switzerland ranks as the No. 1 country in the world to live for older people. Norway and Sweden came in second and third, respectively. The U.S. managed to snag a spot in the top 10, coming in at No. 9, according to the report.