New SCEPA Research

Reconstructing Keynesian MacroeconomicsSCEPA Economist Willi Semmler published a new book, Reconstructing Keynesian Macroeconomics Volume 3, coauthored with Carl Chiarella from Australia's University of Technology and Peter Flaschel from Germany's Bielefeld University.

The final of a three volume series which reinterprets and restructures Keynesian macroeconomic thinking, the book focuses on the interaction between the real economy (where goods and services are exchanged) and the financial markets (where money is borrowed and lent). The authors provide a detailed investigation of the financial, goods, and labor markets and show how variations in one can be stabilized or amplified by changes in another. Using novel empirical methods to test their conclusions, the authors propose a framework for policymakers' use in the modern economy.

It is a fact that the "average" American is living longer. Unfortunately, it is also a fact that white women and men have longer life expectancies at birth than black women and men. However, in 1950, the United States could claim racial equity in one important respect – should they reach age 65, both black and white men could expect to live twelve additional years to age 77.

Sixty years later, this racial equity is now a racial gap. In 2010, white men at age 65 were projected to live almost 2 years longer than black men, while white women could expect to live one year longer than black women.


SCEPA's new Policy Note, "The Racial Longevity Gap Past Age 65: Implications for Raising the Retirement Age," documents this new racial gap in post-65 life expectancy. The research warns of the potential to disportionately burden black Americans under proposals to raise the retirement age and offers policy proposals to address the income gaps that decrease life expectancy. 

Teresa Ghilarducci and Joelle Saad-Lessler released a new working paper examining the decline in employers offering retirement plans. Workplace retirement plans - defined contribution (DC) and defined benefit (DB) - help workers save for retirement conveniently, consistently, and automatically. However, offer rates are steadily declining: between 2001 and 2012, the retirement plan offer rate dropped from 60% to 50%. The drop is driven by a decline in DC plans. Bargaining power matters, since both the length of time spent unemployed and union status significantly impact the likelihood of losing or retaining employer retirement plan offer rates. Therefore, efforts to increase retirement account offer rates must address the decline in workers' bargaining power and the changes in norms relating to benefits provision.

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:

  1. 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.
  2. 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.
  3. 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.
  4. "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.
  5. 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.
  6. 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. 

woman doctorNew 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:

  1. 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.
  2. 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.
  3. 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.

Figure 1

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.

India's Economy

Sanjay Reddy, Associate Professor of Economics at The New School and a SCEPA Faculty Fellow, joins co-editors Sanjay Ruparelia (The New School), John Harriss (Simon Fraser University), and Stuart Corbridge (London School of Economics and Political Science), in announcing publication of a new book, Understanding India's New Political Economy: A Great Transformation?

The book addresses the three most important large-scale transformations that have reshaped India since 1989: the advent of liberal economic reform, the ascendance of Hindu cultural nationalism, and the empowerment of historically subordinate classes through popular democratic mobilizations. Filling a gap in the literature, it describes, explains and assesses the nexus between these central transformations in a rigorous and integrated manner.

Filling a gap in existing literature, the book goes beyond looking at the transformations in isolation, managing to:

Book• Explain the empirical linkages between these three phenomena

• Provide an account that integrates the insights of separate disciplinary perspectives

• Explain their distinct but possibly related causes and the likely consequences of these central transformations taken together

By seeking to explain the causal relationships between these central transformations through a coordinated conversation across different disciplines, the dynamics of India’s new political economy are captured. Chapters focus on the political, economic and social aspects of India in their current and historical context. The contributors use new empirical research to discuss how India’s multidimensional story of economic growth, social welfare and democratic deepening is likely to develop. This is an essential text for students and researchers of India's political economy and the growth economies of Asia.