OCTOBER 23 2015

David Elliott, Chris Jackson, Marek Raczko, Matt Roberts-Sklar: Do moves in oil prices drive longer-term financial market inflation expectations? The data imply an empirical link exists for the US and euro area, but not for the UK. But this is unlikely to reflect a direct impact of oil on actual expectations of future inflation at those long horizons.  Instead, such changes in inflation swap rates could reflect a range of factors other than inflation expectations, including changes in investor behaviour, market structure and risk premia. All of which adds a note of caution when trying to gauge inflation expectations from market-based instruments.

Gaetano D'Adamo, Riccardo Rovelli, IZA: Labour Market Institutions and Inflation Differentials in the EU. Adopting a simple Phillips curve framework, we show that different labour market institutions across EU countries are associated with significant differences in the response of inflation to unemployment and exchange rate shocks. More wage coordination and higher union density flatten the Phillips curve and increase the inflation response to the real exchange rate, i.e. the exchange rate pass-through. In addition, using a new approach to the classification of goods and services as "traded" or "non-traded", we show that both these institutional effects are significantly stronger for the more exposed (traded) sector.

Eduardo Porter, NYT: The myth of welfares corrupting influence on the poor. There is some disincentive effect consistent with theory, but the economic magnitude is not large,” said James P. Ziliak, head of the Center for Poverty Research at the University of Kentucky. “Oftentimes these disincentive effects are overstated in the policy discourse.” On the other hand, welfare provides very tangible benefits. New research shows that more cash welfare early in a child’s life improves the child’s longevity, educational attainment and nutritional status, and income in adulthood.

Richard Freeman, Eunice Han, David Madland, Brendan V. Duke, NBER: How Does Declining Unionism Affect the American Middle Class and Intergenerational Mobility? This paper examines unionism’s relationship to the size of the middle class and its relationship to intergenerational mobility. We use the PSID 1985 and 2011 files to examine the change in the share of workers in a middle-income group (defined by persons having incomes within 50% of the median) and use a shift-share decomposition to explore how the decline of unionism contributes to the shrinking middle class. We also use the files to investigate the correlation between parents’ union status and the incomes of their children. Additionally, we use federal income tax data to examine the geographical correlation between union density and intergenerational mobility. We find: 1) union workers are disproportionately in the middle-income group or above, and some reach middle-income status due to the union wage premium; 2) the offspring of union parents have higher incomes than the offspring of otherwise comparable non-union parents, especially when the parents are low-skilled; 3) offspring from communities with higher union density have higher average incomes relative to their parents compared to offspring from communities with lower union density. These findings show a strong, though not necessarily causal, link between unions, the middle class, and intergenerational mobility.

Jason Furman, Peter Orszag, President’s Council of Economic Advisers: A Firm-Level Perspective on the Role of Rents in the Rise in Inequality. There has been a trend of increased dispersion of returns to capital across firms, with an increasingly large fraction of firms getting returns over 10, 20 or 30 percent annually—a trend that somewhat precedes the shift in the profit share. Longstanding evidence (e.g. Krueger and Summers 1988) has documented substantial inter-industry differentials in pay—a mid-level analyst may have the same marginal product wherever he or she works but is paid more at a high-return company than at a low-return company. Newer evidence (Barth et al. 2014 and Song et al. 2015) suggests that much of the rise in earnings inequality represents the increased dispersion of earnings between firms rather than within firms. This is consistent with the combination of a rising dispersion of returns at the firm level and the inter-industry pay differential model, as well as with the notion that firms are wage setters rather than wage takers in a less-than-perfectly-competitive marketplace.

OECD: Tightening environmental policies have had little effect on productivity growth. Environmental policies address wellbeing and sustainability objectives, affecting firm and household behaviour. A newly developed OECD indicator (EPS) shows that environmental policies have become more stringent over the past two decades. Tightening environmental policies have spurred only short-term adjustments to aggregate productivity growth. Nevertheless, they have led to various effects within the economy. The most technologically advanced industries and firms have seen a small increase in productivity, possibly as they were in the best position to adapt. Least productive firms have seen their productivity fall further.

Olof Johansson-Stenman, Erik Mohlin, Ekonomistas: Blir man mer korrupt av att läsa nationalekonomi? Statsvetaren Bo Rothstein tycks mena att forskningen skulle visa att så är fallet. I ett långt brev till Kungliga Vetenskapsakademin (KVA), samt i en relaterad artikel på DN Debatt (11/10, 2015), argumenterar han för att KVA därför tills vidare bör upphöra med att dela ut Sveriges Riksbanks pris i ekonomisk vetenskap till minne av Alfred Nobel.... Man brukar säga att extraordinära påståenden kräver extraordinära belägg. Hypotesen att nationalekonomiutbildningar skulle generera korruption är onekligen extraordinär, dock visade sig de redovisade beläggen alltså i detta fall vara helt obefintliga.