Finance and welfare states in globalizing markets

It is theoretically clear and may be verified empirically that efficient financial markets can make it less necessary for policy to try and offset the welfare effects of labour income risk and unequal consumption dynamics. The literature has also pointed out that, since international competition exposes workers to new sources of risk at the same time as it makes it easier for individual choices to undermine collective policies, international economic integration makes insurance-oriented government policies more beneficial as well as more difficult to implement. This paper reviews the economic mechanisms underlying these insights and assesses their empirical relevance in cross-country panel data sets. Interactions between indicators of international economic integration, of government economic involvement, and of financial development are consistent with the idea that financial market development can substitute public schemes when economic integration calls for more effective household consumption smoothing. The paper’s theoretical perspective and empirical evidence suggest that to the extent that governments can foster financial market development by appropriate regulation and supervision, they should do so more urgently at times of intense and increasing internationalization of economic relationships. JEL Classification: G1, E2

New Economic Analysis of Law: Beyond Technocracy and Market Design

This special issue on New Economic Analysis of Law features illuminating syntheses of social science and law. What would law and economics look like if macroeconomics were a concern of scholars now focused entirely on microeconomics? Do emerging online phenomena, such as algorithmic pricing and platform capitalism, promise to perfect economic theories of market equilibrium, or challenge their foundations? How did simplified economic models gain ideological power in policy circles, and how can they be improved or replaced? This issue highlights scholars whose work has made the legal academy more than an “importer” of ideas from other disciplines—and who have, instead, shown that rigorous legal analysis is fundamental to understanding economic affairs.The essays in this issue should help ensure that policymakers’ turn to new economic thinking promotes inclusive prosperity. Listokin, Bayern, and Kwak have identified major aporias in popular applications of law and economics methods. Ranchordás, Stucke, and Ezrachi have demonstrated that technological fixes, ranging from digital ranking and rating systems to artificial intelligence-driven personal assistants, are unlikely to improve matters unless they are wisely regulated. McCluskey and Rahman offer a blueprint for democratic regulation, which shapes the economy in productive ways and alleviates structural inequalities. Taken as a whole, this issue of Critical Analysis of Law shows that legal thinkers are not merely importers of ideas and models from economics, but also active participants, with a great deal to contribute to social science research

UK economic performance since 1997: growth, productivity and jobs

A common view is that the performance of the UK economy between 1997 and 2010 under Labour was very weak and that the current economic problems are a consequence of poor policies in this period. In this report, we analyse the historical performance of the UK economy since 1997 compared with other major advanced economies and with performance prior to 1997, notably the years of Conservative government, 1979-97. We focus on measures of business performance, especially productivity growth. This is a key economic indicator as in the long run, productivity determines material wellbeing - wages and consumption. Productivity determines the size of the 'economic pie' available to the citizens of a country

Determinants of Renewable Energy Innovation: environmental policies vs. market regulation

This paper carries out a comprehensive analysis of renewable energy innovations considering four mechanisms suggested by innovation models: 1. policy-inducement; 2. market structure; 3. demand and social cohesion- mainly proxied by income inequality; 4. characteristics of country knowledge base. For OECD countries and years 1970-2005, we build a unique dataset containing time-varying information on quality-adjusted patent production in renewable energy, the latter being a function of environmental policies, green R&D, entry barriers, knowledge stock, knowledge diversity and income inequality. We develop count data models using the Generalized Method of Moments (GMM) to account for endogeneity of policy support. Our synthetic policy index positively affects innovations especially in countries with deregulated energy markets and low entry barriers. The effect of entry barriers and inequality is negative and of similar magnitude as that of policy. Product market liberalization positively affects green patent generation, especially so when ambitious policies are adopted, when the initial level of public R&D expenditures and when the initial share of distributed energy generation is high. Our results are robust to alternative specifications, to the inclusion of technology-specific effects and to the use of quality-adjusted patents as dependent variables. In the latter case, the estimated effect of lowering entry barriers and of knowledge diversity almost double on citation count relatively to patent count.renewable energy technology, patent, environmental policies, product market regulation, inequality

Determinants of Renewable Energy Innovation: Environmental Policies vs. Market Regulation

This paper carries out a comprehensive analysis of renewable energy innovations considering four mechanisms suggested by innovation models: 1. policy-inducement; 2. market structure; 3. demand and social cohesion- mainly proxied by income inequality; 4. characteristics of country knowledge base. For OECD countries and years 1970-2005, we build a unique dataset containing time-varying information on quality-adjusted patent production in renewable energy, the latter being a function of environmental policies, green R&D, entry barriers, knowledge stock, knowledge diversity and income inequality. We develop count data models using the Generalized Method of Moments (GMM) to account for endogeneity of policy support. Our synthetic policy index positively affects innovations especially in countries with deregulated energy markets and low entry barriers. The effect of entry barriers and inequality is negative and of similar magnitude as that of policy. Product market liberalization positively affects green patent generation, especially so when ambitious policies are adopted, when the initial level of public R&D expenditures and when the initial share of distributed energy generation is high. Our results are robust to alternative specifications, to the inclusion of technology-specific effects and to the use of quality-adjusted patents as dependent variables. In the latter case, the estimated effect of lowering entry barriers and of knowledge diversity almost double on citation count relatively to patent count.renewable energy technology; patent; environmental policies; product market regulation; inequality

Trade reforms and wage inequality in Colombia

We investigate the effects of the drastic tariff reductions of the 1980s and 1990s in Colombia on the wage distribution. We identify three main channels through which the wage distribution was affected: increasing returns to college education, changes in industry wages that hurt sectors with initially lower wages and a higher fraction of unskilled workers, and shifts of the labor force towards the informal sector that typically pays lower wages and offers no benefits. Our results suggest that trade policy played a role in each of the above cases. The increase in the skill premium was primarily driven by skilled-biased technological change; however, our evidence suggests, that this change may have been in part motivated by the tariff reductions and the increased foreign competition to which the trade reform exposed domestic producers. With respect to industry wages, we find that wage premiums decreased by more in sectors that experienced larger tariff cuts. Finally, we find some evidence that the increase in the size of the informal sector is related to increased foreign competition – sectors with larger tariff cuts and more trade exposure, as measured by the size their imports, experience a greater increase in informality, though this effect is concentrated in the years prior to the labor market reform. Nevertheless, increasing returns to education, and changes in industry premiums and informality alone cannot fully explain the increase in wage inequality we observe over this period. This suggests that overall the effect of the trade reforms on the wage distribution may have been small

Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from Firm Level Panel Data

This paper analyzes the demand for labor by home multinational enterprises (MNEs) in Europe. To this end we use a unique firm level panel data set of more than 1,200 European multinational enterprises and their subsidiaries that are located in either the European Union, Central and Eastern Europe or both. We investigate whether employment in the MNEs' subsidiaries are substitutes for home employment or in other words we investigate whether European MNEs can easily relocate employment between the parent and their daughter(s). Our main findings can be summarized as follows: (i) We find evidence for substitution effects between parent and foreign employment. A decline of 10% in MNE affiliate's wage costs is associated with a decline in parent employment of between 1.5% and 2% on average. (ii) This effect is mainly driven by firms that operate in the manufacturing sector. Moreover, the substitution effects mainly take place between EU parents and their affiliates located within the EU, rather than affiliates located in Central and Eastern Europe. (iii) We also report results for the non-manufacturing firms, where we find no substitution effects between parents and daughters in the service sectors, while we do find positive substitution effects between parents and their affiliates in Central and Eastern Europe for the firms operating in the wholesale trade and construction sectors. Our results suggest that on average the competition from low wage countries in Central and Eastern Europe did not contribute to a relocation of domestic jobs to Central and Eastern Europe. Substitution effects do take place, however, they mainly occur between parent firms and their affiliates that are located in the European Union.http://deepblue.lib.umich.edu/bitstream/2027.42/39755/3/wp371.pd

Markets, Human Capital, and Inequality: Evidence from Rural China

Market reforms are generally credited with the rapid growth enjoyed by China's rural sector. This growth has not been without some cost, however, as inequality has also increased. Estimates suggest that the Gini rose from less than 0.20 to over 0.40 during this period. In this paper we go behind these numbers to explore the nature and causes of this inequality. To begin, we find that a considerable share of rural inequality is driven by local differences in household incomes, as opposed to regional income differences, that have been the focus of the previous literature. We then examine inter-household income differentials at the village level, exploring the links between education, market development, non-agricultural employment, and household income. To address these questions, we draw on a recently collected data set from Northeast China, that was collected by two of the authors in collaboration with Chinese colleagues in Hebei and Liaoning provinces in 1995. For purposes of comparison, we also draw on the Chinese Health and Nutrition Survey. We find that indeed, increasing rates of return to education and unevenly developed non-agricultural business opportunities contribute to the high levels of inequality in the countryside. Of most interest, however, is the implication that simultaneous improvements in educational attainment and off-farm market-development would allow more households to share in the rapid growth in rural China.http://deepblue.lib.umich.edu/bitstream/2027.42/39682/3/wp298.pd

Regulatory reform, development and distributive concerns

This survey reviews the relationship between regulation and distribution, focusing on regulatory reform in developing countries. The characteristics of these countries impose constraints on appropriate regulatory policies. These constraints condition: i) the terms of the trade-off between firms' rents and efficiency, including the commitment problem in the presence of sunk investments; and ii) the probability of success of removing cross-subsidies. The choices made at reforming infrastructure industries may have a significant impact on perceived distribution and development, and this impact will drive attitudes toward reform. Distributive problems are channeled through politics and institutions, conditioning the potential solutions to the commitment problem. These issues have been extensively explored by the academic literature, which provides guidance on how to address second-generation regulatory reforms.regulation; privatization; infrastructures; development; distribution;

Shaping Earnings Mobility: Policy and Institutional Factors

This paper explores the role of labour market policy and institutional factors in explaining cross-national differences in earnings mobility across Europe in the 1990s using the European Community Household Panel and OECD data on institutional variables. More regulation in both labour and product markets emerge as sources of labour market rigidity, being positively associated with earnings immobility and exacerbating the adverse effects of macro-economic shocks on earnings mobility. Unionization is found to promote earnings mobility, effect, however, counteracted in periods with adverse macroeconomic shocks. Corporatism is found to promote mobility and to counteract the adverse effects of macroeconomic shocks on earnings mobility. The generosity of the unemployment benefit is found to limit the adverse effects of macroeconomic shocks on earnings mobility.Wage Distribution, Inequality, Earnings Mobility, Labour Market Institutions; Labour Market Policies