SEPTEMBER 2 2016

Shekhar Aiyar, Christian Ebeke, Xiaobo Shao, IMF: The Euro Area Workforce is Aging, Costing Growth. The euro area’s population is expected to grow significantly older over the next couple of decades. This has two components. First, the number of retirees is set to grow compared to the people of working age (15–64) in the region. Second, and much less examined, the average age of people within the labor force will rise: the share of workers aged 55–64 is forecast to increase by a third, from 15 percent to 20 percent, over the next two decades. Aging will take a considerable toll on productivity growth over the medium- to long-term. Average total factor productivity growth in the euro area is forecast to be around 0.8 percent per year. This could be higher by a quarter—that is to say, total factor productivity could increase to about one percent per year—if we shut down the effect of workforce aging. The burden of workforce aging will fall unequally across euro area member states. Worryingly, some of the largest adverse effects on productivity will fall on countries that can least afford it, such as Greece, Spain, Portugal, and Italy.

David Halpern, BoE: It’s time to bring more realistic models of human behaviour into economic policy and regulation. Behaviour science has had major impacts on policy in recent years. Introducing a more realistic model of human behaviour – to replace the ‘rational’ utility-maximizer – has enabled policymakers to boost savings; increase tax payments; encourage healthier choices; reduce energy consumption; boost educational attendance; reduce crime; and increase charitable giving. But there remain important areas where its potential has yet to be realised, including macroeconomic policy and large areas of regulatory practice. Businesses, consumers, and even regulators are subject to similar systematic biases to other humans. These include overconfidence; being overly influenced by what others are doing; and being influenced by irrelevant information. The good news is that behavioural science offers the prospect of helping regulators address some of their most pressing issues. This includes: anticipating and addressing ‘animal spirits’ that drive bubbles or sentiment-driven slowdowns; reducing corrupt market practices; and encouraging financial products that are comprehensible to humans.

Rasmus Landersø, James J. Heckman, NBER: The Scandinavian Fantasy: The Sources of Intergenerational Mobility in Denmark and the U.S. This paper examines the sources of differences in social mobility between the U.S. and Denmark. Measured by income mobility, Denmark is a more mobile society, but not when measured by educational mobility. There are pronounced nonlinearities in income and educational mobility in both countries. Greater Danish income mobility is largely a consequence of redistributional tax, transfer, and wage compression policies. While Danish social policies for children produce more favorable cognitive test scores for disadvantaged children, these do not translate into more favorable educational outcomes, partly because of disincentives to acquire education arising from the redistributional policies that increase income mobility.

Jeff Gou, Washington Post: The clearest proof yet that your job is killing you. For decades now, the modern worker has been urged to slow down, chill out, de-stress. Doctors link long shifts and on-the-job anxiety to high blood pressure, heart disease, depression and stroke. Yet, so far, the connection between job strain and bad health has mostly been correlational. Recently, economists at Purdue and the University of Copenhagen made a clever attempt to clear up the question. They looked at Danish manufacturing companies where overseas sales increased unexpectedly because of changes in foreign demand or transportation costs between 1996 and 2006. These constituted a set of natural experiments. At firms where exports spiked, there was suddenly a lot more work to do, a lot more things to sell. Researchers found that women at companies where there was an export boom were subsequently more likely to be treated for severe depression, and more likely to take prescription medication for heart attack or stroke. For both men and women, there was also an increase in severe on-the-job injuries.

Roland G. Fryer, Jr, NBER: An Empirical Analysis of Racial Differences in Police Use of Force. This paper explores racial differences in police use of force. On non-lethal uses of force, blacks and Hispanics are more than fifty percent more likely to experience some form of force in interactions with police. Adding controls that account for important context and civilian behavior reduces, but cannot fully explain, these disparities. On the most extreme use of force – officer-involved shootings – we find no racial differences in either the raw data or when contextual factors are taken into account. We argue that the patterns in the data are consistent with a model in which police officers are utility maximizers, a fraction of which have a preference for discrimination, who incur relatively high expected costs of officer-involved shootings.

Bjorn Lomborg, US Today: Organic food is great business, but a bad investment. An organic label sends our skepticism and good sense out the window. Consumers in one study were given two sets of absolutely identical food items, with one set marked “organic” and one not. They declared the food they believed to be “organic” to be lower in calories and more nutritious, and were willing to pay 16% to 23% more. It’s called the “health halo” effect. Organic food has become the fastest-growing sector of the U.S. food industry, with sales that increase by double digits annually. But organics are not better for your health, worse for nature and the planet, and terrible for the world’s poor. What it boils down to is the world’s richest people spending their cash to support less efficient farming practices, to feel better about their choices.