NOVEMBER 3 2016

Ángel Ubide, VOX: The case for an active fiscal policy. The pre-crisis consensus was, and remains, very strong – the business cycle would be managed by monetary policy, while fiscal policy would focus solely on debt sustainability. In a world of zero interest rates, however, fiscal policy has to contribute to supporting aggregate demand and protecting against deflationary risks. This column outlines three ways in which a well-designed expansionary fiscal policy stance can contribute to better economic outcomes.

Stephen Redding, David Weinstein, VOX: What big data tells us about real income growth. Big data stands to transform economic measurement in substantial ways. The volume and precision of data available allows economists to revisit the foundational assumptions underpinning common indexes. This column presents a new empirical methodology that leverages big data to translate nominal numbers into real output or welfare. ‘The unified approach’ nests major price indexes and addresses implicit biases in these measures. An examination with barcode data suggests that standard methods of measuring welfare overstate cost of living increases by ignoring new products and demand shifts.

Melanie Arntz, Terry Gregory, Ulrich Zierahn, OECD: The Risk of Automation for Jobs in OECD Countries. A Comparative Analysis. In recent years, there has been a revival of concerns that automation and digitalisation might after all result in a jobless future. These studies follow an occupation-based approach proposed by Frey and Osborne (2013), i.e. they assume that whole occupations rather than single job-tasks are automated by technology. We estimate the job automatibility of jobs for 21 OECD countries based on a task-based approach. In contrast to other studies, we take into account the heterogeneity of workers’ tasks within occupations. Overall, we find that, on average across the 21 OECD countries, 9 % of jobs are automatable. The threat from technological advances thus seems much less pronounced compared to the occupation-based approach. We further find heterogeneities across OECD countries. For instance, while the share of automatable jobs is 6 % in Korea, the corresponding share is 12 % in Austria. Differences between countries may reflect general differences in workplace organisation, differences in previous investments into automation technologies as well as differences in the education of workers across countries.

OECD Statistics Directorate: Statistical Insights: What does GDP per capita tell us about households’ material well-being? The preferred measure of people’s material well-being is household disposable income per capita, which represents the maximum amount a household can consume without having to reduce its assets or to increase its liabilities. The above-mentioned factors can create significant differences between measures of household disposable income per capita and GDP per capita. The United States for example see its position relative to the OECD average jump by more than 10 percentage points. On the other hand, Norway falls from 1st on a GDP basis to 4th on a household disposable income basis while Ireland drops dramatically. Switzerland also sees falls in its household income vs GDP ranking, partly because of the relatively large number of cross-border workers.

Manudeep Bhuller, Gordon B. Dahl, Katrine V. Løken, Magne Mogstad, University of Chicago: Incarceration, Recidivism and Employment. We construct a panel dataset containing the criminal behavior and labor market outcomes of the entire population, and exploit the random assignment of criminal cases to judges who differ systematically in their stringency in sentencing defendants to prison. Using judge stringency as an instrumental variable, we find that imprisonment discourages further criminal behavior, and that the reduction extends beyond incapacitation. Incarceration decreases the probability an individual will reoffend within 5 years by 27 percentage points, and reduces the number of offenses over this same period by 10 criminal charges. In comparison, OLS shows positive associations between incarceration and subsequent criminal behavior. This sharp contrast suggests the high rates of recidivism among ex-convicts is due to selection, and not a consequence of the experience of being in prison. Exploring factors that may explain the preventive effect of incarceration, we find the decline in crime is driven by individuals who were not working prior to incarceration. Contrary to the widely embraced ‘nothing works’ doctrine, these findings demonstrate that time spent in prison with a focus on rehabilitation can indeed be preventive.

Robert J. Shiller, Times: What’s Behind a Rise in Ethnic Nationalism? Maybe the Economy. It is natural to ask whether something so broad might have a common cause, other than the obvious circumstantial causes like the gradual fading of memories about the horrors of ethnic conflict in World War II or the rise in this century of forms of violent ethnic terrorism. Economics is my specialty, and I think economic factors may explain at least part of the trend.

Pascal Mittermaier, Project Syndicate: How Trees Make Cities Healthier. Heat waves account for more deaths than any other type of weather-related event, killing more than 12,000 people worldwide each year. Making matters worse, cities tend to have higher rates of air pollution, especially fine particulate matter (PM) resulting from the combustion of fossil fuels and biomass, which contributes to up to three million deaths every year. Fortunately, there is a simple step that municipal leaders can take to reduce both extreme heat and air pollution: plant more trees.