AUGUST 31 2017

Larry Summers, Blog: Issues under discussion at Jackson Hole. The fatal flaw here is failure to recognize the importance of fluctuations in the neutral rate and market perceptions of its future level.  Suppose as has been true in recent years that the neutral rate falls.  That reflects a decrease in investment demand relative to saving supply and so is a reason other things equal for easier money.  What will happen to some financial conditions index?  Stock prices will rise because of a lower discount factor.  The dollar will fall because of lower rates.  Long rates will fall because of reduced real rate expectations.  Financial conditions indices will show great ease even when developments call for more easing.

Kenneth Rogoff, Project Syndicate: Protectionism Will Not Protect Jobs Anywhere. Countries that go too far in closing themselves off to foreign competition eventually lose their edge, with innovation, jobs, and growth suffering. Brazil and India, for example, have historically suffered from inward-looking trade policies, though both have become more open in recent years. Another problem is that most Western economies have long since become deeply intertwined in global supply chains. Even the Trump administration had to reconsider its plan to pull out of the North American Free Trade Agreement when it finally realized that a lot of US imports from Mexico have substantial US content. Erecting high tariff barriers might cost as many US jobs as Mexican jobs. And, of course, if the US were to raise its import tariffs sharply, a large part of the costs would be passed on to consumers in the form of higher prices.

Matthew C Klein, FT:  The myth of the German jobs miracle. Germany’s jobs growth is more myth than miracle. Yes, the number of Germans listed as having a job has grown by about 15 per cent since the lows in the mid-1990s. But the total number of hours worked is less than 2 per cent higher over the same period and still significantly lower than in the early 1990s. This wouldn’t necessarily be a problem if an employment boom happened to coincide with a widespread desire to spend less time on the job. But this is unlikely, since the disconnect between jobs and hours worked went hand in hand with a large increase in the share of Germans at risk of poverty. German taxes on low-paid workers were among the highest in the world when the data began in 2000 and they’ve stayed that way ever since. No wonder German consumers have been so miserly! This isn’t just bad for German workers, but for the whole world.

Paolo Pinotti, Microeconomic Insights: Opportunity and access: how legal work status affects immigrant crime rates. Immigrants in Italy represent less than 10 percent of the country’s population, but 34 percent of its people in prison. When taking a closer look at the immigrant prison population, it becomes apparent that the over-representation is attributed to irregular immigrants lacking legal work status. In fact, regular immigrants – those who have been granted a legal work permit – exhibit crime rates in line with those of the native population. By comparing the outcomes of immigrants who were randomly assigned legal work permits in Italy, I show that a lack of legal access to the official labor market increases the likelihood that immigrants will engage in criminal activity. Immigrant males, who were randomly granted legal access to work in Italy, reduced their rate of criminal behavior by 0.7 percent after receiving resident status compared to similar immigrants, who were randomly denied a work permit.

Per-Anders Edin, Peter Fredriksson, Martin Nybom, Björn Öckert, IZA: The Rising Return to Non-Cognitive Skill. We examine the changes in the relative rewards to cognitive and non-cognitive skill during the time period 1992–2013. Using unique administrative data for Sweden, we document a secular increase in the returns to non-cognitive skill, which is particularly pronounced in the private sector and at the upper-end of the wage distribution. Workers with an abundance of non-cognitive skill were increasingly sorted into occupations that were intensive in: cognitive skill; as well as abstract, non-routine, social, non-automatable and offshorable tasks. Such occupations were also the types of occupations which saw greater increases in the relative return to non-cognitive skill. Moreover, we show that greater emphasis is placed on noncognitive skills in the promotion to leadership positions over time. These pieces of evidence are consistent with a framework where non-cognitive, inter-personal, skills are increasingly required to coordinate production within and across workplaces.

Erin Brodwin and Matt Johnston, Independent: The countries most likely to survive climate change in one infographic. The folks at Eco Experts put together a great infographic in June based on data from the Notre Dame Global Adaptation (ND-Gain) Index, an annual ranking of which countries are best poised to adapt to a warming world. Developed countries as a whole have far more infrastructure to adapt to a warming planet.