New SCEPA Research
Economic growth starts with clusters of economic activity – groups of companies and other institutions working in similar fields. This takes place primarily in cities, which are the source of innovation, bringing together concentrations of capital investment, highly educated labor forces, advanced infrastructure, and institutions such as universities that create innovation and jobs. The challenge remains how to connect these forces for job creation, especially for the unemployed.
Here are a few of the many resources that provide ideas and examples of how market economies can jumpstart job creation at decent wages and working conditions:
- Los Angeles has figured out a way to create jobs and achieve economic growth through smart investment. Each time LA provides subsidies to private companies or plans infrastructure development, the contracts are contingent on providing jobs at livable wages and environmental improvement.
- The Annie E. Casey Foundation promotes economic growth with equity. Their report, "Big Ideas for Job Creation," describes nonconventional but practical policies for creating demand and investment.
- PolicyLink works in Detroit and other cities with large pockets of unemployment. Its economists argue that equity is not a consequence or output growth, but that polices promoting economic equity can foster growth and improve social conditions.
- "Back to Full Employment," a book from New School graduate and professor at U Mass. Amherst Robert Pollin, argues that a nation can use a green platform to stimulate job creation with revenue from a tax on financial transactions.
- Green For All is a leader in combining environmental concerns with job creation, focusing on how environmental improvements can create employment for low-income and poor populations.
- Brookings Metropolitan Policy Program, headed by Bruce Katz, concentrates on how cities are the center of metropolitan regions and those regions, in turn, create economic growth for a nation.
New research by SCEPA Faculty Fellow and Visiting Heuss Professor Stephan Klasen questions the conventional wisdom that women’s participation in the labor force will automatically increase with economic development. Rather, in a paper co-authored with Isis Gaddis, he suggests that the lack of empirical evidence for this theory suggests that proactive measures are needed to promote women’s employment opportunities in developing countries.
The standard hypothesis in development economics is that female labor force participation (FLFP) follows a U-shaped trend as countries develop. Developing countries initially have high rates of female labor participation, due to poverty and the ability to combine domestic and agrarian work. As these countries develop, female participation falls because women’s social, cultural, and economic barriers make it difficult for women to find work in the industrial sector. As countries get richer, these trends are reversed again, largely due to increases in female education, fertility decline, and a slow dismantling of the structural and social barriers against female employment.
Klasen’s work finds that this U-shaped trend vanishes when using advanced econometric techniques such as dynamic panel estimations and depends on the data sources used. Moreover, the differences in the level of female participation among different countries is related to historical and cultural aspects. For example, female labor force participation rates in Sub Saharan Africa are substantially higher than predicted by the U-theory due to the strong roles women play in agriculture. Rates are also much lower than predicted in the Middle East and North Africa, with women’s participation linked to economic structure and societal barriers to employment.
In the United States, approximately one-third of jobs do not pay enough for full-time workers to provide for their families. One of the major barriers to implementing policies to ensure sufficient wages is the conventional argument that increasing the minimum wage would cause increased unemployment, making it more difficult for low-skill workers and young people to find jobs.
SCEPA Working Paper, "Low Pay, Employment and Labor Market Regulation: Lessons from France?" by SCEPA Faculty Fellow David R. Howell, Bert M. Azizoglu, and Anna Okatenko, finds that the conventional assumption about the relationship between the minimum wage and unemployment rates is false. In fact, the authors find that France has been able to increase the minimum wage without causing adverse effects on employment rates.
This research challenges assumptions about labor policy in the United States. Specifically, the authors find that French policymakers have "all but outlawed low-wage work" by increasing the minimum wage above the standard low-wage threshold, ensuring that even low-education and low-skill jobs provide sufficient wages. While wages were increasing in the mid-1990s, unemployment and employment rates have remained stable or even improved.
The paper contributes three major findings that have significant policy implications in the United States:
- Due to a lack of regulation in the U.S. labor market, the share of low-wage jobs in the United States has been stable at around 30 percent over the last three decades, but there are significant increases in the number of low-paying jobs for young workers, especially men.
- The aggregate data from France offers no suggestion that increases to the minimum wage will raise levels of unemployment, even for less-educated or young French workers.
- Despite an increase in wages and higher labor costs for employers in France during the last two decades, French labor market performance, as measured by the adequate employment rate (AER), has improved relative to the United States. In other words, the percentage of the French workforce that earns above the low-wage threshold and is not underemployed has increased relative to the United States.
These findings suggest revisiting the conventional debate on wages and employment.
SCEPA's latest research paper, Do Cultural Tax Districts Buttress Revenue Growth for Budding Arts Organizations? by Lauren Schmitz, questions the role government should play in financing the arts.
While previous research has noted the possibility of public funding 'crowding-out' private dollars, Schmitz finds evidence of a 'crowding in' of private investment in her investigation of Denver's Scientific and Cultural Facilities Districts (SCFD). She puts forward the following theories to explain this effect: (1) SCFD funding may function as a stable source of income, allowing organizations to create the quality programming needed to attract audiences; (2) SCFD organizations may benefit from a "signaling effect" to the community that relays the value of their programming and worthiness of support; and (3) SCFD funds may incentivize organizations to create more mainstream or marketable programming that appeals to a broader population.
by Rick McGahey, SCEPA Faculty Fellow
Charles Murray is back. The notorious co-author of 1994's The Bell Curve, who claimed that racial differences in IQ tests and socio-economic status could be explained in part by genetic transmission of intelligence, is out with a new book. Coming Apart looks at growing differences between lower and upper-income whites, and notes that social problems—crime, divorce, unemployment—are growing for the lower income, while the upper income group prospers and is more socially stable.
Murray blames this not on income gaps, but, as a good neo-conservative will do, on liberals in the 1960s. "The '60s were a disaster in terms of social policy," Murray argues, saying that work and morality were de-incentivized, creating negative trends that "soon became self-reinforcing."
You would think the ensuing policy discussion would focus on how to get better-paying jobs for low income people, and how to improve schools that serve the poor, but instead (at least in The New York Times) it is about cultural difference between the rich and poor and early childhood education.
Growing external imbalances among member countries play a key role in the current economic crisis plaguing the European Monetary Union (EMU). Based on empirical evidence put forward in a recent paper, SCEPA researchers Willi Semmler, Christian Proaño, and Christian Schoder published a SCEPA Policy Note, The Euro and the Sustainability of Current Account Imbalances, to offer recommendations to reduce external imbalances caused, to some extent, by the Euro.
These findings can also be found on Economonitor - the economic policy blog of the Roubini Global Economics project.
Addressing a popular audience through the New York Times, Harvard's Edward Glaeser wrote that "Perhaps the single most important policy-related insight in economics is that changes in policies lead to behavioral responses" (Glaeser, 2010). It is instructive that Glaeser's first example is UI benefits and that the effects are presented as unconditional: "More generous unemployment insurance leads to longer spells of unemployment." If this is true, and it reflects moral hazard (work avoidance), and it is assumed that longer spells directly translate into higher rates of unemployment, it would be natural to expect that the unprecedented expansion of UI benefits from 26 to as many as 99 weeks has been a leading cause of the extraordinary 2008-9 increases in U.S. long-term unemployment. Among mainstream economists, this story appears to be overwhelmingly accepted.
Focusing on the Great Recession, a new paper by David Howell and Bert M. Azizoglu takes a critical look at this vision of large-scale policy-induced work avoidance and the evidence that has been put forward to confirm it. They find that this evidence, which has relied entirely on the application of past labor market conditions to the Great Recession, is not very compelling and appears largely theory-driven. On the other hand, examination of 2008-10 data, both in several recent studies and by us, offers no support for the work disincentive account. If UI benefit extensions are responsible for increasing unemployment, it appears to have been more by increasing the incentive to remain connected to the labor market in a time of severe job rationing than by increasing the incentive to avoid working.
If more rigorous future empirical work supports this conclusion, it would be consistent with the heterodox vision that most workers value a job apart from the income it provides and abhor unemployment, because it is idleness, shame, inadequate income, and fear of a jobless future that they wake up to every morning, not leisure. In times of deficient aggregate demand, UI spending increases job openings and encourages job search. The policy implications are straightforward. On both equity and efficiency grounds, the correct policy response to large-scale job destruction and job rationing is to dramatically increase the duration of benefits, just as U.S. policymakers did in The Great Recession.
Getting It Right: Empirical Evidence and Policy Implications from Research on Public-Sector Unionism and Collective Bargaining
A new paper co-authored by SCEPA's director Teresa Ghilarducci delves into the public-policy debate about public-sector unionism and collective bargaining. "The debate largely centers on the extent to which public employee unions have contributed to this crisis through the pay and benefits they have negotiated for public employees. The role of government as employer is connected in this debate to the role of government as a taxing authority and provider of public services. These roles are often claimed to be in conflict with one another — that is, governments as employers are seen as not exercising the same due diligence in setting pay and benefits as private-sector employers. The research evidence indicates, however, that these claims about public employment are based on incomplete and in some cases inaccurate understanding."
Duncan Foley's new paper investigates how service industries such as Finance, Insurance, and Real Estate, Education and HealthServices, and Professional and Business Services, for which value added is imputed from incomes, are included in Gross Domestic Product, potentially distorting measures of recession and recovery. He advocates an alternative index, Narrow Measured Value Added, which excludes all services, has similar historic correlations with employment to GDP, and tracks employment in recent business cycles better. The U.S. economy as measured by NMVA has a lower longterm real rate of growth. Long-term macroeconomic policy requires attention to some version of the productive unproductive labor distinction of the classical political economists.