• Recommendations for Further Reading
  • November 1, 2017

Collective bargaining, getting over globalization, and urbanization in Africa

Protesters march past Trafalgar Square against public expenditure cuts in a rally organized by the Trades Union Congress in 2011.



The IMF has issued a staff report on the topic of “Negative Interest Rate Policies—Initial Experiences and Assessments.”

There is some evidence of a decline in loan and bond rates following the implementation of NIRPs [negative interest rate policies]. Banks’ profit margins have remained mostly unchanged. And there have not been significant shifts to physical cash. That said, deeper cuts are likely to entail diminishing returns, as interest rates reach their ‘true’ lower bound (at which point agents shift into cash holdings). And pressure on banks may prove greater; especially in systems with larger shares of indexed loans and where banks compete more directly with bond markets and non-bank credit providers. … 

On balance, the limits to NIRPs point to the need to rely more on fiscal policy, structural reforms, and financial sector policies to stimulate aggregate demand, safeguard financial stability, and strengthen monetary policy transmission. This report can be read as a complement to the paper by Kenneth Rogoff, “Dealing with Monetary Paralysis at the Zero Bound,” in the Summer 2017 issue of this journal.

IMF (2017)


The OECD Employment Outlook 2017 devotes a chapter to the topic “Collective Bargaining in a Changing World of Work.”

About 80 million workers are members of trade unions in OECD countries, and about 155 million are covered by collective bargaining agreements … On average, 17% of employees are members of trade unions, down from 30% in 1985 … On average across OECD countries, the share of workers covered by a collective agreement has shrunk to 33% in 2015 from 45% in 1985. … Overall, collective bargaining coverage is high and stable only in countries were multi-employer agreements (i.e. at sector or national level) are negotiated and where either the share of firms which are members of an employer association is high or where agreements are extended also to workers working in firms which are not members of a signatory employer association.

OECD (2017)


Lee Branstetter and Daniel Sichel present “The Case for an American Productivity Revival.”

Labor productivity performance in the United States has been dismal for more than a decade. But productivity slowdowns — even lengthy ones — are nothing new in US economic history. This Policy Brief makes the case that the current slowdown will come to an end as a new productivity revival takes hold. Why the optimism? Official price indexes indicate that innovation in the technology sector has slowed to a crawl, but better data indicate rapid progress. Standard measures, focused on physical capital, suggest that business investment is weak, but broader measures of investment that incorporate intellectual and organizational capital report much more robust investment. New technological opportunities in healthcare, robotics, education, and the technology of invention itself provide additional reasons for optimism. This Policy Brief gauges the potential productivity impact of these developments. The evidence points to a likely revival of US labor productivity growth from the 0.5 percent average rate registered since 2010 to a pace of 2 percent or more. A productivity revival of this magnitude would provide a solid foundation for steady increases in wages.

Branstetter, et al. (2017)


The National Cancer Institute and the World Health Organization offer a nearly 700-page overview of The Economics of Tobacco and Tobacco Control.

The global health and economic burden of tobacco use is enormous and is increasingly borne by low- and middle-income countries. Already, around 80% of smokers live in LMICs. While smoking prevalence is falling at the global level, the total number of smokers worldwide is not decreasing, largely due to population growth. … Significant tobacco tax and price increases, comprehensive bans on tobacco industry marketing activities, and prominent pictorial health warning labels are generally the least costly tobacco control interventions, followed by the implementation and enforcement of smoke-free policies and the provision of population-wide tobacco cessation programs. Significant tobacco tax and price increases are the most cost-effective of these interventions.

The National Cancer Institute and the World Health Organization (2016)

Some Shifting Patterns of International Trade

Chiara Criscuolo and Jonathan Timmis discuss “The Relationship Between Global Value Chains and Productivity.

The bulk of trade is comprised not of final goods or services, but of trade in intermediate parts and components and intermediate services. Among OECD economies, trade in intermediate inputs accounted for 56 percent of total goods trade and 73 percent of services trade over the period 1995–2005. … GVCs [global value chains] present a new means to access international markets: economies need no longer build complete supply chains at home; instead, they can leverage foreign inputs in their production. … 

GVCs are a well-established vehicle for productivity spillovers to local firms. A substantial part of GVC integration is mediated through FDI [foreign direct investment] … A large literature has investigated FDI spillovers and arrives at a broad consensus in favour of positive productivity spillovers to industries that supply multinationals through backward linkages, with little evidence through other linkages … Knowledge acquisition is an important motive for FDI, which may increase the scope for knowledge diffusion. Firms may relocate some activities, including innovation activities, to obtain access to so-called strategic assets—skilled workers, technological expertise, or the presence of competitors and suppliers—and learn from their experience. 

Criscuolo, et al. (2017)


The Global Value Chain Development Report 2017 has the theme of Measuring and Analyzing the Impact of GVCs on Economic Development.” It includes an “Executive Summary” by David Dollar and eight chapters written by other contributors. Here is Dollar’s explanation of the “smile curve,” in which most of the gains from a global value chain happen at the front-end and tail-end of the chain—not the middle:

The logic of the smile shape is as follows. Research and design activities for critical components of the electrical and optical equipment occur early in the production process … These knowledge activities tend to be high-value-added activities in GVCs [global value chains] and tend to be carried out in more advanced economies. For example, in the 1995 curve Japan and the United States (JPN28 and USA28) are in the upper left corner, reflecting the high-value-added contributions from these two countries’ financial services sector. The Chinese industry that manufactures the good, Chinese electrical and optical (CHN14), is at the bottom point of the curve, reflecting assembly activity at low wages. The activities closest to the consumer are marketing, logistics, and after-product servicing. These market knowledge industries are also high value added, as shown by the upward-sloping part of the smile curve on the right. And they tend to be carried out in advanced economies, where the mass consumption products are eventually purchased by households. … 

[The smile curve] captures anxieties felt by both rich and poor countries in contemplating contemporary trade. Rich-country electorates worry that manufacturing is being hollowed out—that is, that semiskilled production jobs have moved to developing countries or, to the extent that such jobs still remain in advanced economies, have suffered downward pressure on wages. Poor countries worry that they are trapped in low-value-added activities and are locked out of the higher value-added activities in design, key technological inputs, and marketing. 

Dollar (2017)


Michael O’Sullivan and Krithika Subramanian make a case for the likely emergence of a multipolar world trading system in “Getting over Globalization.”

We believe that the world is now leaving globalization behind it and moving to a more distinct multipolar setting. … The … scenario is based on the rise of Asia and a stabilization of the Eurozone so that the world economy rests, broadly speaking, on three pillars—the Americas, Europe and Asia (led by China). In detail, we would expect to see the development of new world or regional institutions that surpass the likes of the World Bank, the rise of ‘managed democracy’ and more regionalized versions of the rule of law—migration becomes more regional and more urban rather than cross-border, regional financial centers develop and banking and finance develop in new ways. At the corporate level, the significant change would be the rise of regional champions, which in many cases would supplant multinationals. … 

An interesting and intuitive way of seeing how the world has evolved from a unipolar one (i.e. USA) to a more multipolar one is to look at the location of the world’s 100 tallest buildings. The construction of skyscrapers (200 meters plus in height) is a nice way of measuring hubris and economic machismo, in our opinion. Between 1930 and 1970, at least 90% of the world’s tallest buildings could be found in the USA, with a few exceptions in South America and Europe. In the 1980s and 1990s, the USA continued to dominate the tallest tower league tables, but by the 2000s there was a radical change, with Middle Eastern and Asian skyscrapers rising up. Today about 50% of the world’s tallest buildings are in Asia, with another 30% in the Middle East, and a meager 16% in the USA, together with a handful in Europe. In more detail, three-quarters of all skyscraper completions in 2015 were located in Asia (China and Indonesia principally), followed by the UAE and Russia. Panama had more skyscraper completions than the USA.

O'Sullivan, et al. (2017)


Workers erect a building in Durban, South Africa, in October 2016/Bigstock

Africa: Urbanization and Electrification

Roland White, Jane Turpie, and Gwyneth Letley consider Greening Africa’s Cities: Enhancing the Relationship between Urbanization, Environmental Assets, and Ecosystem Services.

Urbanization in Africa began later than in any other global region and, at a level of about approximately 40%, Africa remains the least urbanized region in the world. However … this is rapidly changing: SSA’s [sub-Saharan Africa’s] cities have grown at an average rate of close to 4.0% per year over the past twenty years, and are projected to grow between 2.5% and 3.5% annually from 2015 to 2055. … 

From an environmental perspective, this has two important implications. On the one hand, most of Africa’s urban space has yet to emerge. Much of the area which will eventually be covered by the built environment has not yet been constructed and populated. Crucial natural assets—and significant biodiversity—thus remain intact in areas to which cities will eventually spread. On the other hand, this is changing quickly: pressures on the natural environment in and around cities are escalating steadily and these assets are increasingly under serious threat.”

White, et al. (2017)


Simone Tagliapietra raises the challenge of “Electrifying Africa: How to Make Europe’s Contribution Count.”

Less than a third of the sub-Saharan population has access to electricity, and around 600,000 premature deaths are caused each year by household air pollution resulting from the use of polluting fuels for cooking and lighting. … Electrification rates in sub-Saharan African countries average 35 percent … The situation is even starker in rural areas, where the average electrification rate in sub-Saharan Africa stands at 16 percent … 

Furthermore, the number of people living without electricity in sub-Saharan Africa is rising, as ongoing electrification efforts are outpaced by rapid population growth. … In sub-Saharan Africa, average electricity consumption per capita is 201 kilowatt-hours (kWh) per year, compared to 4,200 kWh in South Africa and 1,500 kWh in North African countries. The situation is even worse in rural areas of sub-Saharan Africa with access to electricity, where electricity consumption per capita remains even below 100 kWh per year.

Tagliapietra (2017)

Applications of Blockchain

Philip Boucher, Susana Nascimento, and Mihalis Kritikos discuss “How Blockchain Technology Could Change Our Lives.”

There are many different ways of using blockchains to create new currencies. Hundreds of such currencies have been created with different features and aims. The way blockchain-based currency transactions create fast, cheap and secure public records means that they also can be used for many non-financial tasks, such as casting votes in elections or proving that a document existed at a specific time. Blockchains are particularly well suited to situations where it is necessary to know ownership histories. For example, they could help manage supply chains better, to offer certainty that diamonds are ethically sourced, that clothes are not made in sweatshops and that champagne comes from Champagne. They could help finally resolve the problem of music and video piracy, while enabling digital media to be legitimately bought, sold, inherited and given away second-hand like books, vinyl and video tapes. They also present opportunities in all kinds of public services such as health and welfare payments and, at the frontier of blockchain development, are self-executing contracts paving the way for companies that run themselves without human intervention.

Boucher, et al. (2017)


Michael Pisa and Matt Juden evaluate “Blockchain and Economic Development: Hype vs. Reality.”

Increasing attention is being paid to the potential of blockchain technology to address long-standing challenges related to economic development. … [W]e examine its potential role in addressing four development challenges: (1) facilitating faster and cheaper international payments, (2) providing a secure digital infrastructure for verifying identity, (3) securing property rights, and (4) making aid disbursement more secure and transparent.

Pisa, et al. (2017) 

Interviews with Economists

Douglas Clement offers an “Interview with Hilary Hoynes.”

Food stamps started under President Kennedy. His first executive action was to start some pilot programs for food stamps. … Those pilot programs eventually led to passage of the Food Stamp Act in 1964. But it wasn’t until 1974, 10 years later, that subsequent legislation compelled all areas to implement food stamps. … This resulted in gradual rollout of food stamps across the almost 3,200 U.S. counties. … The ‘rollout design’ is one of the tools in our tool bag for doing evaluation. … We couldn’t in our data know precisely which families were on food stamps, so it’s sort of an indirect estimate. But we know whether food stamps were implemented when these individuals were 2 or 4 or 14 or 20 years old. We essentially analyzed the data within that lens: How old were you when food stamps were rolled out in your county? … 

The headline finding was about health. We measured metabolic syndrome, which is essentially a range of conditions including high blood pressure, diabetes, heart disease and obesity. … And we found that the more exposure to food stamps that a person had, the lower their risk of metabolic syndrome in adulthood. In particular, the gains were greatest if the food stamps program was implemented before an individual was 3 or 4 years old. That period between in utero exposure—prebirth—to those first three or four years of life, was the age range where having more exposure to food stamps available led to a more dramatic reduction in the incidence of metabolic syndrome in adulthood.

Clement (2017)


Jessie Romero plays the interlocutor role in “Interview: Janet Currie.”

There is a large environmental justice literature arguing that low-income and minority people are more likely to be exposed to a whole range of pollutants, and that turns out to be remarkably true for almost any pollutant I’ve looked at. A lot of that has to do with housing segregation; areas that have a lot of pollution are not very desirable to live in so they cost less, and people who don’t have a lot of money end up living there. It also seems to be the case, at least some of the time, that low-income people exposed to the same level of pollutants as higher-income people suffer more harm, because higher-income people can take measures to protect themselves.” On another topic: “Many people are concerned about overtreatment and excessive [health care] spending, but the problem is more subtle. Bentley, Jessica Van Parys, and I studied heart attack patients admitted to emergency rooms in Florida. … 

Young, male doctors who trained at a top-20 medical school were the most likely to treat all patients aggressively, regardless of how appropriate the patient seemed to be. In the case of heart attacks, it appears that all patients have better outcomes with more aggressive treatment, so treating only the ‘high-appropriateness’ patients aggressively harms the ‘low-appropriateness’ patients. Similarly, many people are concerned that U.S. doctors perform too many C-sections. But actually … it looks like too many women with low-risk pregnancies receive C-sections, while not enough women with high-risk pregnancies receive C-sections. So the goal shouldn’t necessarily be to reduce the total number of C-sections but rather to reallocate them from low-risk to high-risk pregnancies.

Romero (2017)


Open pit coal mining. / Bigstock

Discussion Starters

Arnold Kling asks “How Effective is Economic Theory?”

Economists are not without knowledge. We know that restrictions on trade tend to help narrow interests at the expense of broader prosperity. We know that market prices are important for coordinating specialization and division of labor in a complex economy. We know that the profit incentive promotes the introduction of improved products and processes, and that our high level of well-being results from the cumulative effect of such improvements. We know that government control over prices and production, as in communist countries, leads to inefficiency and corruption. We know that the laws of supply and demand tend to frustrate efforts to make goods more ‘affordable’ by subsidizing them or to lower ‘costs’ by fixing prices. But policymakers have goals that go far beyond or run counter to such basic principles. They want to steer the economy using fiscal stimulus. They want to shape complex and important markets, including those of health insurance and home mortgages. It is doubtful that the effectiveness of economic theory is equal to such tasks. … 

There is a very real possibility that over the next 20 years academic economics will congeal into a discipline, like sociology today, which is definitively shaped by an ideologically driven point of view. … This will be evident in beliefs of economists that are politically consistent but analytically contradictory. For example, it is politically consistent for someone on the left to believe that a rise in the minimum wage would not reduce hiring and also that more immigration would not depress wages. Analytically, however, these are opposite views. … The contemporary state of economic theory reflects a broader crisis in the social sciences and a deepening cleavage between the college campus and the rest of society. 

Kling (2017)


Charles D. Kolstad investigates “What Is Killing the US Coal Industry?”

[O]ver the past 60 years output of coal more than doubled … Despite great expansion in coal production over the past half century, employment has steadily declined … In the first decade of the new millennium, productivity gains—this time in natural gas—generated a fundamental shift in which coal was no longer clearly the cheapest fossil fuel. At the same time, solar and wind have made significant inroads into electricity generation, again providing a competitive threat to coal. Productivity gains, in coal, gas, and other energy sources, have been a primary force of change. This buildup of pressures has finally resulted in the retirement of very old coal-fired generating units that were built before most Americans were born. Ironically, many of these retirements would probably have occurred long ago except for the Clean Air Act’s preferential treatment of old coal plants. … What is clear from this discussion is that environmental regulations did not kill coal. Progress is the culprit.”

Kolstad (2017)


Justin Bryan provides an overview of “High-Income Tax Returns for Tax Year 2014.”

For Tax Year 2014, there were almost 6.3 million individual income tax returns with an expanded income of $200,000 or more, accounting for 4.2 percent of all returns filed for the year. … Of the 9,692 returns without any worldwide income tax and expanded incomes of $200,000 or more, the most important item in eliminating tax, on 54.7 percent of returns, was the exclusion for interest income on State and local Government bonds … 

The next three categories that most frequently had the largest primary effect on taxes were: 1) the medical and dental expense deduction (15.6 percent or 1,509 returns); 2) the charitable contributions deduction (8.5 percent or 819 returns); and 3) the foreign-earned income exclusion (6.6 percent or 638 returns). The item that was most frequently the secondary effect in reducing regular tax liability on high expanded-income returns with no worldwide income tax was the deduction for taxes paid (24.4 percent or 2,365 returns).

Bryan (2017)