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Organisations:

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Surveys:

International Survey on Covid

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Policy specific:

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OECD policy responses to Covid

Covid and health care capacity

Media:

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Modelling and data:

Epidemic calculator

Our World in Data

Bing

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The Political Consequences of Labor Market Dualization

It took a while but my contribution to the symposium on dualization in PSRM is finally out in first view!

My article explores empirically how different types of labor market inequality affect policy preferences in post-industrial societies.

I argue that the two main conceptualizations of labor market vulnerability identified in the insider–outsider literature are complementary: labor market risks are shaped by both labor market status—whether an individual is unemployed, in a temporary or permanent contract—and occupational unemployment—whether an individual is in an occupation with high or low unemployment.

As a result, both status and occupation are important determinants of individual labor market policy preferences.

In this paper, I first briefly conceptualize the link between labor market divides, risks and policy preferences, and then use cross-national survey data to investigate the determinants of preferences.

Check out other papers in this symposium by Achim Kemmerling, Marius Busemeyer, Silja Hausermann, Hanna Schwander, Philip Rehm, Georg Picot, Paul Marx and David Rueda!

New paper on individual support for basic income in Europe

There is a long-standing debate in academic and policy making circles about the normative merits and economic effects of a Universal Basic Income (UBI). However, existing literature does not sufficiently address the question of the factors associated with individual support for a UBI. While a large literature in political economy has focused on individual preferences for existing welfare state benefits, it has not analysed the case of a UBI.

I seek to remedy this gap in a new journal article entitled “The Political Economy of individual level support for the basic income in Europe” forthcoming at the Journal of European Social Policy.

Using the eighth wave of the European Social Survey (ESS), I analyse individual support for a UBI in 21 European countries. The findings from logistic regression analyses with country fixed effects are partly consistent with the expectations of previous social policy and political economy literatures. Younger, low-income, left-leaning individuals and the unemployed are more likely to support a UBI. Individuals with positive views of benefit recipients, and/or high trust in political institutions are also more supportive, while anti-immigration attitudes are associated with lower support.

However, the patterns across occupations is mixed and male respondents appear slightly more supportive. Trade union membership is not statistically significant, perhaps because of contradictory effects: unions typically support new welfare state policies but they also have a key role in many existing welfare state schemes and may worry about individuals’ attachment to the labour market. At the country level, support tends to be higher where activation is more pronounced and unemployment benefits less generous.

Taken together, these results suggest one possible reason why countries with large support for a UBI have not introduced it: the mixed support among the Left means a pro-UBI coalition has to draw on right-wing voters who may support it only with lower taxes and/or extensive replacement of welfare state benefits, which in turn may further alienate parts of the Left.

For more information  you can access the PDF of the article

The Politics of Universal Basic Income

The Universal Basic Income (UBI) has a long history. The idea to provide all citizens with an unconditional and regular income cash benefit without means-test or requirement[1] has been discussed as far back as the 18th century[2].

Thinkers on the right are attracted to its simplicity, which contrasts with the current complex welfare state arrangements in most advanced economies, its minimalism and its low adverse effects on work incentives, since it is paid irrespective of labour market participation.

On the left, people emphasise its universalism and unconditionality which would reduce the gaps in coverage of current benefits and ensure labour is decommodified, thereby increasing the power of workers to bargain for better working conditions and wages.

Its detractors are similarly located across the ideological spectrum. Many liberal economists see UBI as prohibitively expensive and inefficient insofar as it directs resources to those who may not need them.

Others on the left see UBI as a dangerous legitimisation of capitalism and an implicit acceptance that not everyone will be provided a job. They also emphasise UBI’s limited ability to address all the social risks that individuals face in a market economy.

Finally, some trade unions, particularly in Bismarckian welfare regimes, oppose what they see as releasing employers of their social responsibility. Trade unions also voice concerns that this will reduce their institutional power which lies in their key role in managing the administration of social insurance benefits.

Continue reading “The Politics of Universal Basic Income”

Brexit and bargaining power: UK and EU compared

Europe (including UK) UK
GDP (purchasing power parity) $19.18 trillion (2016 est.) $2.788 trillion (2016 est.)
GDP (official exchange rates) $16.27 trillion (2015 est.) $2.65 trillion (2015 est.)
GDP growth 1.9% (2016 est.) 1.8% (2016 est.)
GDP – per capita (PPP) $37,800 (2016 est.) $42,500 (2016 est.)
industry share of GDP 25.50% 19.20%
Labour force 232.9 million 33.17 million (2016 est.)
Unemployment 9.5% (2015 est.) 5.1% (2016 est.)
Population below poverty line 9.80% 15% (2013 est.)
Budget surplus (+) or deficit (-) -3% of GDP -3.8% of GDP (2016 est.)
Public Debt 86.8% of GDP (2014) 92.2% of GDP (2016 est.)
Inflation rate 0.1% (2015 est.) 0.5% (2016 est.)
Population 515,052,778 (July 2016 est.) 64,430,428 (July 2016 est.)
65 years and over  19.1% (2016 est.) 17.90%
Life expectancy at birth 80.2 years 80.7 years
Hospital bed density 5.4 beds/1,000 population 2.9 beds/1,000 population (2011)
Infant mortality rate 4 deaths/1,000 live births 4.3 deaths/1,000 live births
Source: CIA world factbook [https://www.cia.gov/library/publications/the-world-factbook/]

Being unemployed in the US after the Obama presidency

Obama was elected in 2008 during the height of the crisis with much expectations that he would improve the conditions of the least well-off in American society. As his term nears its end, I use the latest OECD data to assess how unemployed individuals fare now compared to both other developed countries and to when he started his term.

In a nutshell, I show that in all plausible scenarios, individuals in the initial phase of unemployment are worse off in the US than in a median OECD or EU country and their relative situation has gotten worse since 2007, especially if they are in the middle class.

OECD data

The OECD has data on the net replacement rates for six family types in the initial phase of unemployment. The latest data available is 2014 so it is in principle plausible – though unlikely – that the situation has improved massively in the last two years and that this is not captured by my data. Note further the emphasis on the initial phase of unemployment: after a certain time in unemployment – which varies by country – unemployed lose eligibility to certain benefits (or experience falls in the replacement rate).

The OECD tax-benefit Model allows you to specify the marital situation of the family (single, one earner married couple, and two earners married couple) and whether they have children (in this case no children versus two children) for different levels of the average wage.

For simplicity I show the replacement rate for a case when the family does not qualify for cash housing assistance or social assistance in either the in-work or out-of-work situation. I also do not consider the case of earners with 150% of average wage.

The situation in 2014

Figure 1 shows the difference between the US and the EU/OECD average replacement rates in 2014. As an example consider the case of a single person with no children earning 67% of the average wage prior to becoming unemployed. In the US, the person would get 61% out of work income as a percentage of previous earnings equal to 67% of the average wage. The equivalent OECD median is 65% while the EU median is 68% so the gap between the US and the OECD median is 4 percentage points while it is 7 percentage points between the US and the EU.

Comparing different family and income situations reveals that the US is least generous compared to the OECD and EU median for ‘middle class’ (100% of average wages) families that are composed of lone parents with 2 children. The next biggest gap between the US and the OECD/EU median is for low income families with either one earner couple or a lone parent.

By contrast, low income families (67% of average wage) with two earners with or without two children would fare almost exactly the same in terms of replacement rate in the median OECD and EU country as in the US.

Figure 1: The difference between the US and the EU/OECD average replacement rates in 2014

EU US gap in 2014

Cross-national variation

In Figure 2, I show the 2014 cross-national variation in the replacement rate for a single earner with no children that does not qualify for cash housing assistance or social assistance and had previous earnings of 67% of average wage. This reveals that the US is not the worse country among developed countries (the worse is not surprisingly the UK – though note that the situation does not quite look as dire for the UK if the family qualifies for cash housing assistance). But it is located in the bottom half of the ranking.

Figure 2: 2014 replacement rate for a single earner with no children that does not qualify for cash housing assistance or social assistance and had previous earnings of 67% AW

Figure 3

Changes since 2007

In 2014, the average across all family types and both income situations for the US is 59% compared to 70% for the OECD median and 71% for the EU median. This represents a fall from 2007 where the average was 62% for the US, 60% for the OECD and 71% for the EU median.

Figure 3 shows how the gap between the US and the EU has evolved between 2007 and 2014 for different family-income scenarios. Positive values indicate that there has been an increase in the gap between what a person would get in a median EU country and what they would get in the US. Thus for instance, we see that the biggest increases in the gap has been for one  earner married couple with no children that earned 100% of the average wage prior to becoming unemployed and a single person with no children also earning 100% of the average wage prior to becoming unemployed. The next biggest increase has occurred for a lone parent with two children.

Thus, over the Obama presidency, the welfare of vulnerable middle class families in the US relative to their counterpart in the Europe has gotten worse. This is a striking result given the significant retrenchment of European welfare states that has taken place in Europe between 2008 and 2014 (the period under consideration here).

Figure 3: The difference between the EU-US gap in 2007 and in 2014

Change between 2014 and 2007.jpgDisappointing but not surprising

While disappointing, the falling welfare of the unemployed in the US is not entirely surprising from a theoretical perspective. The welfare state literature makes clear that liberal welfare regimes’ structure (e.g. targeted means tested benefits) limit the popular support for generous welfare state benefits for the unemployed that are seen as particularly undeserving.

As Rehm brillantly discusses in his latest book “Risk inequality and Welfare state“, countries with concentrated risks of unemployment among low income workers are less likely to exhibit pro-welfare state cross-class coalitions. At the same time, the US type of capitalism limits the power of the unions while making it unlikely that employers will consent – in the words of Korpi – to more generous social policies (see Varieties of Capitalism literature).

As a result, where there is no clear efficiency imperative (e.g. Obamacare in the context of objective inefficiencies in the health care sector in the US), it is therefore difficult even for a left leaning government to undertake an expansion of welfare state policies.

Regulations in ‘rigid’ labour markets are less likely to be enforced

How difficult is it to fire a worker in different countries?

To answer this question, most social scientists have created many indicators that capture the conditions, costs and uncertainty associated with firing an employee.

For instance the OECD Employment Protection Legislation (EPL) index measures “the procedures and costs involved in dismissing individuals or groups of workers and the procedures involved in hiring workers on fixed-term or temporary work agency contracts”

The determinants and consequences of EPL

This index is then used in statistical analysis to assess the impact of EPL on economic outcomes, such as unemployment, or to identify the determinants of EPL reforms, for instance partisanship.

The conventional wisdom is that EPL has adverse economic consequences (studies by IMF and OECD, Layard, Botero and others), but the stability of the findings to different specification has been contested (for instance see work by Baker, Avdagic and others).

Employment Protection Legislation: rules versus enforcement

For a long time a more obvious problem has been that legal restrictions on firing can only be expected to have any effects on labour market performance if the legislation is actually enforced on the ground.

The issue here is not so much that employment protection legislation might not enforced (which is likely) but more importantly that it might be enforced to varying degrees in different countries in ways that we cannot observed.

New database on enforcement

This shortcoming is now being partly addressed in recent research by Kanbur and Ronconi published in the Centre for Economic Policy Research.

In a shorter version of the paper they have published in VoX they explain how they created a new indicator of enforcement that combines both inspections and penalties.

Their results are interesting in at least two respects

  1. First, once they control for their measure of enforcement in a statistical analysis of the determinant of labour market performance, EPL no longer has a statistically significant adverse effect for most measures of performance. In other words, labour market regulations do not in fact seem to have a consistent effect on labour market outcomes.
  2. Second, they show that countries with more stringent EPL have lower enforcement levels, which then makes it difficult to know which country’s labour market really is more ‘rigid’. This is shown in the figure below that plots a de jure employment index on the horizontal axis and their enforcement index on the vertical axis.

Interpreting the figure: some country examples

The ranking should be interpreted as follows: countries which are lower on the scale have higher ranking and hence more protective institutions or more enforcement. Thus for instance, while Canada and Denmark have among the lowest ranking in de jure employment protection (they are not in the top 150 countries), they rank really high in terms of enforcement (in top 25). By contrast, France and Spain score high on EPL but do not rank well in terms of enforcement: their stringent regulations are not well-enforced compared to many other countries.

Figure: Enforcement and labour law

Untitled

The Impact of the Elderly on Inflation Rates in Developed Countries

My latest working paper on the relationship between ageing and inflation has just come out as an LSE working paper. You can access it here.

And here is the abstract:

What explains the cross-national variation in inflation rates in developed countries? Previous literature has emphasised the role of ideas and institutions, and to a lesser extent interest groups, while leaving the role of electoral politics comparatively unexplored. This paper seeks to redress this neglect by focusing on one case where electoral politics matters for inflation: the share of the population above 65 years old in a country. I argue that countries with a larger share of elderly have lower inflation because older people are both more inflation averse and politically powerful, forcing governments to pursue lower inflation. I test my argument in three steps. First, logistic regression analysis of survey data confirms older people are more inflation averse. Second, panel data regression analysis of party manifesto data reveals that European countries with more old people have more economically orthodox political parties. Third, time series cross-section regression analyses demonstrate that the share of the elderly is negatively correlated with inflation in both a sample of 21 advanced OECD economies and a larger sample of 175 countries. Ageing may therefore push governments to adopt a low inflation regime.

Evolution of GDP per capita in USSR versus over developed countries

Every now and then I will get in a debate with colleagues and others about economic performance in USSR versus other developed ‘liberal’ economies. From my development economics training, I am well aware that the USSR was not a particularly sustainable nor desirable development model, but also that on GDP alone it performed pretty well. This latter point has been challenged in discussions so many times that I started to doubt it myself, so I thought I would check it again and post it so as to direct people to this post in the future!

Now I’m not an apologist for Soviet communism as a political nor economic system, but I’m often puzzled to find such a systematic reluctance among a wide variety of people to acknowledge that on GDP figures alone (and there are many shortcomings to these figures – which may or may not make them useful to compare economic performance across very different systems in long time periods) the USSR did perform fairly well, especially when compared to Western European countries.

Comparative economic performance over time is not among my main research interests (and hence I make no claims to particular expertise on this issue) but a cursory look at GDP per capita (in 1990 dollars – from Maddison’s database) from 1920 (ie a couple of years after the end of WWI) to 1988 (a few years before the USSR dissolved), reveals the USSR’s GDP per capita was multiplied by 12 compared to 4 in the USA, 5.2 in France, 5.78 in Germany, about the  same in Sweden, and Central and North Italy by 7.19 (see the table below).

One can (perhaps even should) argue that the soviet system was cruel, inefficient in many respects, unjust, etc, and it might that by cherry picking other time periods the results are different, but over the whole – relevant in my opinion – time period the USSR’s GDP per capita prima facie has increased much more than in its capitalist competitors. Of course this is the rate of growht in GDP per capita, but in terms of levels the USSR was still massively behind the US. But the difference between the USSR and US in terms of GDP per capita was about 1 to 10 in 1920 and had fallen to less than 1 to 4 in 1988.

Selected years and countries from the Maddison-Project, http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version.

GDP per capita (1990 Int. GK$)
Country 1920 1988 1988/1920
Austria 2,412 15,754 6.53
Belgium 3,962 16,252 4.10
Denmark 3,992 18,224 4.57
France 3,227 16,790 5.20
Germany 2,796 16,160 5.78
(Centre-   North) Italy 2,153 15,485 7.19
Holland/     Netherlands 4,220 16,044 3.80
Norway 2,739 18,059 6.59
Sweden 3,004 17,232 5.74
Switzerland 6,568 20,243 3.08
England/GB/UK 4,548 16,110 3.54
12 W. Europe 3,333 16,307 4.89
USA 5,552 22,499 4.05
F. USSR 575 7,043 12.25

Addendum 1

Of course in terms of basic growth theory, this faster growth rate of the USSR makes sense: with higher returns to capital and a lower capital base, the USSR was able to grow by building its capital base much faster and drawing on reserve labour (ie extensive growth). In some ways, communist was more efficient at containing consumption than capitalist systems and hence at mobilising the resources for investment. But as it caught up and had to rely on innovations and technological progress (intensive growth), growth started slowing down in the USSR as its economic system was not conducive to innovation.

P.s. Janos Kornai has written extensively on this topic.

Addendum 2

If one focuses purely on the post-WW2 experience, the picture is more mixed with the USSR performing less well than Austria, Germany, north Italy and Norway but about the same as Belgium, Denmark, the Netherlands, and better than the US and the UK. I suspect this difference is partly the result of Addendum 1 and partly the different experience with the recession of the late 1920s and early 1930s.

Country 1946 1988 1988/1946
Austria 1,956 15,754 8.05
Belgium 4,574 16,252 3.55
Denmark 5,777 18,224 3.15
France 3,855 16,790 4.36
Germany 2,217 16,160 7.29
(Centre-     North) Italy 2,162 15,485 7.16
Holland/Netherlands 4,457 16,044 3.60
Norway 4,335 18,059 4.17
Sweden 5,646 17,232 3.05
Switzerland 8,997 20,243 2.25
England/GB/UK 6,745 16,110 2.39
12 W. Europe 3,925 16,307 4.15
USA 9,197 22,499 2.45
F. USSR 1,913 7,043 3.68