Economics

Labor and Employment

  • Brazil
    Brazil’s Agonizing August
    The coming month will be a stressful one for Brazilians. The Olympic opening ceremony on August 5 may have two rival presidents in attendance, killer mosquitoes, pesky media, and now, the potential for terrorism. Most Brazilians had long hoped the games would be a chaotic but happy mess, like the 2014 World Cup, and few anticipated an embarrassment. But sentiment has shifted with the arrest of a dozen alleged homegrown extremists. Terrorism can be added to the long litany of potential problems that have led Rio de Janeiro Mayor Eduardo Paes to note that “contingencies are always possible,” and that the Olympics have been a “lost opportunity” for Brazil. With the Australians refusing to move into their “uninhabitable” Olympic quarters, male U.S. golfers avoiding Rio de Janeiro on Zika concerns, and athletes complaining about astounding pollution, the games are already a net public relations loss. The only winners so far seem to be the state of Rio de Janeiro, which received a last minute, R$2.9 billion emergency fund from the federal government that is enabling it to pay down overdue civil servant salaries, and the federal military personnel in the Força Nacional, whose living allowances were more than doubled when they threatened to walk away from running security for the Games. In Brasília, meanwhile, the political games will also be getting underway. August will start a day early, with demonstrations—both in favor and against the impeachment of Dilma Rousseff—planned nationwide for Sunday, July 31. Rousseff’s defense in the Special Committee on Impeachment should wrap up by the end of this week, and the Committee will likely vote during the first week of August on whether or not to proceed to trial. There is little doubt that the Committee will move to a trial, although the legitimacy of impeachment has been vociferously challenged, including by one federal prosecutor, Ivan Marx, who undermined the fiscal basis for impeachment by arguing that there were no grounds for criminal prosecution. The Senate trial, however, won’t get underway until the last week of August, which will keep Brasília on tenterhooks all month. Prosecutor Marx’s claims about the absence of criminal responsibility, and the brouhaha over Glenn Greenwald’s harsh criticism of the Folha de S. Paulo newspaper for its misleading reports on polling about the possibility of holding new elections, have seriously dented the legitimacy of pro-impeachment forces. Uncertainty will be exacerbated by politicians’ longstanding tradition of selling their support dearly, which means that Senators may play up their ambivalence about impeachment until the last minute in the hopes of convincing the interim Michel Temer administration to be generous with budget allocations, key appointments, and state debt negotiations. Street demonstrations are likely again during the third week of August, with all of the uncertainty about potential violence and strange behaviors that popular demonstrations elicit. A vote against Rousseff still seems much more likely than not, but August will play cruelly with the faint of heart. August also sets the stage for the last two years of the presidential term. Minor policy changes have been slowly wending their way through Congress in the first two months of interim President Temer’s administration, including legislation establishing Central Bank autonomy and facilitating labor outsourcing. But the major reforms that Temer has suggested, and that markets have been clamoring for—including pension and labor reform—won’t move forward until impeachment is finalized (assuming, of course, that Rousseff loses in the Senate). Even the end of the impeachment drive won’t bring major legislative movement, though, as legislators’ attention will have to turn almost immediately to the nationwide municipal elections. Free TV advertising by politicians begins August 26, and then there will be five weeks of chaotic campaigning before the first round of elections on October 2. The second round of elections, in major cities, won’t be until October 30, meaning that for all intents and purposes, the legislative calendar and major reform initiatives will be on hold until November. But does this mean that Brazil is in danger of becoming the world’s largest failed state, as one blogger recently noted in the Financial Times? Pshaw. Brazil is facing a remarkable set of challenges, undoubtedly. But it has also weathered the storms of recent years far better than could be expected from many of its emerging market peers. August will be tumultuous, and the remainder of the presidential term will be difficult, no matter which politicians survive the next month. But Brazilians have been through dark times before in the past thirty years since redemocratization, and Brazilian democracy has always emerged, resilient and improved, on the other side. The much more important long-term question is how this experience will affect Brazil’s developmentalist economic policies and its coalitional political system, which have both been shaken to their core, but remain deeply embedded. That is a subject for a future post. In the meantime, August will give us plenty to think about.
    Blog Post by Matthew M. Taylor July 26, 2016 Latin America’s Moment
  • Wars and Conflict
    This Week in Markets and Democracy: Labor Rights in Supply Chains, Bank Secrecy Act, and the Kimberley Process
    Supply Chains Take Center Stage at International Labor Conference Of the $26 trillion in commerce flowing around the world, over 70 percent are intermediate goods. This reflects the rise of global supply chains. The International Labor Organization (ILO) conference put this dominant means of production on the agenda for the first time this year, addressing working conditions for those within these chains. Government and business leaders from the ILO’s 187 member countries spent the past two weeks debating whether to set official standards to push companies like Walmart, Gap, and Nestlé to address labor violations along their transnational production chains. Though any new rules would be non-binding, historically ILO standards have prompted legislation. Bank Secrecy Act Takes On Corruption Goldman Sachs may have run afoul of the Bank Secrecy Act in its dealings with Malaysian state development fund 1MDB. The 1970 legislation requires U.S. banks to report suspicious deposits or transfers. In 2013 Goldman transferred $3 billion from a 1MDB bond deal to a small Swiss bank. Days later, half the funds disappeared offshore, with some resurfacing in Malaysian President Najib Razak’s personal accounts. J.P. Morgan and HSBC have also been penalized under the act for neglecting to report the Madoff Ponzi scheme and providing financial services to Mexican drug cartels, respectively. Designed originally to target money laundering, the Goldman Sachs probe shows the act can help take on global corruption. Kimberley Process Lifts Diamond Ban on CAR     The Kimberley Process—a joint initiative by producer and consumer countries, jewelry companies, and civil society to keep “conflict diamonds” out of global markets—lifted a three-year embargo on the Central African Republic (CAR). In the wake of a 2013 coup, the government lost control of mining regions to rebel groups, making it unable to confirm the origins of its gems. The nation’s newly-elected government promises to trace its stones again, at least those from certain stable regions. Advocates for continuing the ban doubt the government’s capacity to weed out blood diamonds in the face of roving militias and active smuggling.
    Blog Post by Shannon K. O'Neil June 10, 2016 Development Channel
  • Labor and Employment
    No Helping Hand: Federal Worker-Retraining Policy
    Overview How America Stacks Up: Economic Competitiveness and U.S. Policy compiles all eight Progress Reports and Scorecards from CFR's Renewing America initiative in a single digital collection. Explore the book and download an enhanced ebook for your preferred device.  A decade ago the United States had the lowest share of long-term unemployed workers among developed nations. But today U.S. long-term unemployment levels are nearly as high as those in Europe, despite stronger overall U.S. economic performance. In 2000, 11.4 percent of unemployed American workers had been out of work for more than six months, compared to 51.9 percent in the rest of the Group of Seven (G7) countries. Throughout the recession those numbers were converging. In 2013, 37.6 percent of unemployed workers in the United States had been out of work for more than six months; that rate was 53.8 percent in the rest of the G7. U.S. federal employment and training programs that assist job seekers do little to help the long-term unemployed prepare for different careers. "Ineffective worker-adjustment policies undermine economic recovery, lead to skills shortages for employers, and hurt U.S. competitiveness," Research Associate Robert Maxim explains in the progress report. "Other advanced economies invest more in worker adjustment and use innovative programs to minimize unemployment." The United States spends far less on programs that directly help people find work than other developed countries do, in part because past U.S. unemployment was mostly short-term, and the unemployed tended to be rehired for similar jobs. In 2011, the most recent year for which comparable data is available, the rest of the G7 spent five times as much on active labor market measures as the United States did. Nations with a lengthier history of long-term unemployment, such as Germany and Denmark, have taken a more proactive role in equipping the unemployed with new skills and identifying available jobs. Although the United States has nearly fifty employment and training programs across nine federal agencies, this system fails to provide adequate assistance for most eligible Americans, and allocates its limited resources unequally among the unemployed. During a recent five-year period the Government Accountability Office found that only five of these programs had undergone impact studies to determine whether workers’ success could be attributed to the programs. Congress has shown some willingness to work across the aisle on jobs. A compromise bill, the Workforce Innovation and Opportunity Act, passed the previous Congress with bipartisan support in July 2014. But the bill leaves the existing system largely intact, and more innovative approaches are still needed. This scorecard is part of CFR's Renewing America initiative, which generates innovative policy recommendations on revitalizing the U.S. economy and replenishing the sources of American power abroad. Scorecards provide analysis and infographics assessing policy developments and U.S. performance in such areas as infrastructure, education, international trade, and government deficits. The initiative is supported in part by a generous grant from the Bernard and Irene Schwartz Foundation. Download the scorecard [PDF]. Table of Contents Click on a chapter title below to view and download each Progress Report and Scorecard.
    Report by Robert Maxim February 1, 2016 Renewing America
  • China
    The Fits and Starts of China’s Economic Reforms
    Over the past several months, it has become more than a full-time job trying to figure out what is going on in the Chinese economy. There have been many good efforts to make sense of all the disparate numbers that are coming out of Beijing and to tell people what to look for moving forward (including from George Magnus, Gabriel Wildau, and Eswar Prasad), but it is challenging. One thing that should not be—but often is—forgotten in the sea of numbers is the politics of the reform process. The political dimension can provide some much-needed context as to the problems Beijing is facing. Let me suggest three political factors that may be contributing to Beijing’s disjointed and seemingly sub-optimal economic decision-making process.                   Economic Reform=Less Control=Risk to Legitimacy. No matter how talented the economists sitting around the perimeter of Zhongnanhai may be, decisions are made by the mostly non-economist leaders of the Communist Party, and economic reform puts their legitimacy at stake in a very fundamental way. It is easy to forget that all the proposed reforms—currency, stock market, state-owned enterprise, among them—require that the Chinese leaders loosen or lift their levers of control over the economy, something they are loath to do. Their legitimacy hinges largely on economic growth, and the market introduces a significant degree of uncertainty into the equation and their ability to deliver that economic growth. The leaders will constantly be experimenting with how much they can let go to achieve the change they want while still holding on to as much power as they can. We should expect economic reform to continue in fits and starts. Xi Jinping is the ultimate decider. The word on the hutong is that the buck stops with Xi Jinping. Some good may come from that, but here are a few of the reported challenges: First, the buck stops with Xi, but Xi does not necessarily understand the nuts and bolts of the economic issues he is trying to address; and when he does address them, it is not clear that he is entirely comfortable with the risk and volatility that transforming China into a market economy entails. Second, Xi is primarily concerned with how the economy can advance China’s position in the world, so appealing to Xi’s sense of China as a global power is the way to get an initiative approved: hence “One Belt, One Road” (which many Chinese economists are concerned will not actually provide any real benefits to the Chinese economy) and the aggressive push for the Chinese yuan to be added to the International Monetary Fund’s SDR basket (a move some Chinese analysts believe happened before the country’s financial institutions were ready). Third, there are multiple power centers in the economic decision-making process: Xi and his advisers, Wang Qishan and his economic kitchen cabinet, and Li Keqiang and his increasingly hapless team.  Enough said. And finally, when Xi travels, economic decision-making grinds to a halt, and Xi travels a lot. The burden of expectations. With Xi Jinping and his team now beginning their fourth year in power, the pressure is on to deliver some significant reform success. Most analysts and businesspeople outside China believed that the Chinese government would roll right through its massive economic reform agenda broadly laid out in the November 2013 third plenum of the 18th Party Congress. It wasn’t a question of “if” but “when.” That is not happening. In addition, the Chinese people want their assets to be secure, their children to be well-educated, and their air to be clean. All of these are actually monumental reform agenda items. (Note: surely it cannot be chance that in 2012, Chinese nationals made up 1,675 of the ten thousand EB-5 visas—visas granted to people who invest one million dollars in a U.S. company and provide jobs for ten people—offered by the U.S .government and in 2014, they accounted for 8,308.) At the same time, labor protests have just about doubled during 2014-2015 to 2,500. Social stability remains the leaders’ paramount concern, and could easily be a trigger for a round of poor economic choices.   None of this is to say that economic reform in China won’t happen. But it will reflect all the messy and painful politics that plague any country trying to overhaul its economy, and then some.
    Blog Post by Elizabeth C. Economy January 25, 2016 Asia Unbound
  • China
    Want to Borrow From the IMF? China Just Made It More Expensive.
    On November 30 the International Monetary Fund made its long-awaited announcement that it would add the Chinese RMB to its basket of globally important reserve currencies – the Special Drawing Right (SDR). The impact is largely symbolic for China, although from October 2016 it will mean that even if U.S., eurozone, Japanese, and UK interest rates were to remain flat the rate on normal IMF loans will be 21 basis points higher–a 20 percent jump from the current 1.05 percent rate. This is because the Fund’s borrowing rate is set by a formula based on a weighted average of 3-month government borrowing rates for the countries whose currencies comprise the SDR basket (plus 100bp). And China’s rates are much higher than those of the incumbents, as shown in the figure above. What difference will this make? Well, take Greece. Back in June, it was unable to pay back €300 million owed to the Fund. If its borrowing rate had been 21bp higher, it would have owed an additional €65 million. Not only will IMF borrowing rates be higher in the future, thanks to the RMB’s new status, but they will also be more volatile – since Chinese rates are far more variable than U.S. and other SDR incumbent rates. So if you’re thinking of borrowing from the Fund – be prepared to pay more next October.
    Blog Post by Benn Steil and Emma Smith December 4, 2015 Geo-Graphics
  • Labor and Employment
    Legal Barriers to Economic Participation
    Podcast
    Sarah Iqbal, director of the World Bank Group’s Women, Business, and the Law project, highlights findings from the World Bank’s fourth edition of the global Women, Business and the Law report series.
    Event with Sarah Iqbal and Rachel B. Vogelstein October 23, 2015 Women and Foreign Policy Program
  • Gender
    “Uberization” and “New” Economy Pose Old Dilemmas
    From New York City Mayor Bill de Blasio to presidential candidates—policy makers and analysts have been talking about the “uberization” of the economy as if it were a new phenomenon. Uber, TaskRabbit, Instacart, AirBnB, and RelayRides are just a few of the companies that make up what is increasingly being called the “sharing economy” (or, relatedly, the “gig economy”), in which technology facilitates and monetizes the sharing of particular tasks (“gigs”), services, and goods. This emerging sector has become popular and controversial, with critics and proponents debating the trade-offs between the regulation of the formal economy, on the one hand, and the flexibility and innovation of these emerging sectors within the informal, less regulated economy, on the other. While New York City Mayor de Blasio tried (unsuccessfully) to reign in Uber’s expansion in the Big Apple this summer, the sharing economy has drawn comments more broadly from both democratic and republican presidential contenders. As a pioneer in what has been touted as a “new” economy, Uber itself has become iconic, as it has entered more than 60 markets (ranging from San Francisco to Berlin to Tokyo). According to Reuters in 2014, leaked financials indicated that the company was generating $200 million a year in revenue beyond what it pays to drivers. Meanwhile, Uber is in court fighting against drivers who want to be classified as “employees” – rather than contractors – and who want greater benefits that go along with being considered a regularly employee. Democratic presidential candidate Hillary Clinton recently criticized Uber for not giving workers benefits, commenting: “Many Americans are making extra money renting out a spare room, designing a website ... even driving their own car. This on-demand or so called ‘gig’ economy is creating exciting opportunities and unleashing innovation, but it’s also raising hard questions about workplace protections and what a good job will look like in the future.” Republican presidential candidate Jeb Bush, on the other hand, made a point of hailing an Uber in San Francisco this summer to demonstrate his support for the ride-sharing firm and the on-demand economy, in which app-driven services are seen as an example of unfettered market activity that is free of the intrusive, cumbersome hand of government regulation. The sharing economy began to grow in popularity during the financial crisis—a time when people were looking for new ways to both save and make money. Obtaining goods and services via the sharing economy has become cheaper and easier than traditional options. It has allowed renters and sellers to monetize sharing activities, like renting out a room, sharing a car ride, or selling personal shopping services, and created opportunities for people to supplement their income or stitch together a full-time income through part-time work. Yet, this emerging economy is essentially rooted in the informal sector and lacks government oversight and labor protections found in the formal economy. What is missed in the broader debate is that the conundrums posed by these trade-offs are not new. In fact, these dilemmas demonstrate what has been an old quandary experienced disproportionately by women. Around the world, women have long been a dominant force in the informal economy, and the sharing activities that are a part of the informal sector. Women run day care out of their homes, provide cleaning services to neighbors, and car pool to soccer and other after-school events. From nannies to domestic workers to soccer moms, women in the informal sector hold a range of paid and unpaid “jobs.” These jobs, like those in the growing sharing economy, are often unregulated and leave workers vulnerable. Women are easily exploited and can be as quickly fired as they are hired, lack formal work contracts, and do not have access to employee protections like health insurance. They are also often paid well below a livable wage–some are not even paid at all. What is new is that with new communication technologies and social media, entrepreneurs in the sharing and gig sectors can reach more customers – and more rapidly – than ever before, with a simple swipe of a smart phone. In the “new” sharing and gig economies, which are dominated by Silicon Valley start-ups, companies have resisted providing workers with many of the protections found in the formal economy including health insurance, retirement benefits, or a guaranteed wage. What lessons can we learn from the experiences of women around the world? Women working in the “informal economy” provide services and goods at a lower cost. This means that making a livable wage depends on how many jobs they can complete or how many clients they receive. Income and availability of work is less predictable, even as work schedules are more flexible. The risk is that clients and jobs can disappear quickly, leaving workers unemployed with none of the protections or stability of the formal economy. The informal economy – and the women who work in this sector – is an important but neglected part of the global economy. Economic activity from the informal sector is not included in common economic indicators like gross domestic product (GDP). The United Nation’s proposed post-2015 sustainable development goals #8 calls for a number of “practical and measurable targets” concerning labor protections as a way of achieving its aim to “promote sustained, inclusive, and sustainable economic growth, full, and productive employment and decent work for all.” As the debate over the “uberization” of the economy continues in New York City and nationally in the U.S. presidential race, policy makers might look to the global debate – and the long experience of women in the informal sector – to determine how all workers can benefit from basic, humane labor protections, while consumers can continue to enjoy the advantages of greater cost-sharing, flexibility, and innovation which the informal, sharing, and gig economies provide.
    Blog Post by Catherine Powell September 3, 2015 Women Around the World
  • Europe and Eurasia
    Correcting Paul Krugman’s Austerity Chart for Monetary Effects Yields Very Different Results
    In two recent blog posts (1/6 and 1/7), Paul Krugman highlighted a chart he made that, he says, illustrates clearly the failure of “austerity” around the world.  We reproduce it above on the left. Krugman’s chart plots changes in real GDP against changes in real government purchases for 33 advanced countries between 2010 and 2013.  The slope of the trend line (which Krugman does not draw) is clearly positive (with R-squared of 0.31), suggesting strongly that cutting government spending (during that period) reduced growth, and that raising it increased growth. The problem with this figure is that it mixes countries that were able to use monetary policy with those that weren’t – such as those in the Eurozone or those with hard currency pegs.  Referring to this problem, Scott Sumner recently asked on his blog: “Why do Keynesians show cross-sectional graphs of fiscal austerity and growth, mixing in countries that have their own independent monetary policy with those that do not?” Sumner’s point is that countries that have independent monetary policy can, in principle, offset fiscal drag with more accommodative monetary policy.  Is he right? On the right-hand figure above, we re-did Krugman’s chart for advanced countries with independent monetary policies.  Lo and behold, Krugman’s spending-growth relationship collapses, as Sumner would have expected. This is not to say that austerity is good.  But it does undermine the empirical basis for Krugman’s claim that reducing government spending lowers growth, and that increasing government spending raises growth, at least in countries that can use monetary policy as well as fiscal policy.   Follow Benn on Twitter: @BennSteil Follow Geo-Graphics on Twitter: @CFR_GeoGraphics Read about Benn’s latest award-winning book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, which the Financial Times has called “a triumph of economic and diplomatic history.”
    Blog Post by Benn Steil and Dinah Walker January 13, 2015 Geo-Graphics
  • Labor and Employment
    A Bipartisan Work Plan
    American workers continue to struggle with lost livelihoods and wasted opportunities amid the most sluggish recovery since the Great Depression. The United States needs new policies designed to help people develop the skills they need to manage economic change with greater personal security. A jobs policy overhaul should be guided by three core principles: concentrate on jobs for the long-term unemployed; supplement wages, when necessary, to encourage employers to increase hiring; and relax congressional budget rules for programs that help people become earners and increase future tax revenues. These efforts should also be measured and evaluated far more effectively to bolster programs that work and eliminate those that fail. The Context: Matching Workers With New Jobs In today's troubled labor market, many people with rusty skills and fading hopes have quit looking for work altogether—as evidenced by today's labor force participation rate that remains markedly below its precrisis level. Less-skilled workers, minorities, and teenagers have been especially hard hit. In October 2014, nearly three million Americans had been unemployed for half a year or longer, and millions more have dropped out of the labor force. Yet at the same time, there were nearly five million job openings across the country. This mismatch is a human disaster that should be solved with aggressive policy innovation and the same resolve and whatever-it-takes attitude that the United States applies to natural disasters. Both the House and Senate, with broad bipartisan support, agreed in 2014 on a Workforce Innovation and Opportunity Act to reform job training. This legislation is a constructive start toward a larger effort to create a twenty-first-century system that links people directly to jobs. The new act streamlines the old job training system by eliminating fifteen redundant programs, applying a single set of metrics for outcomes, creating more flexibility for state and local efforts, and targeting special needs such as people with disabilities and young workers. But Congress needs to keep up the momentum for continuing innovation by reaching beyond traditional committee jurisdictions and approaches to job training. In his 2014 State of the Union address, President Barack Obama identified the overlooked opportunity to retool worker-adjustment programs and directed Vice President Joseph Biden to lead a review. If the administration is able to close some major trade agreements, then Congress will also debate whether a revision of Trade Adjustment Assistance (TAA) should be part of the package. Traditional TAA spending, which is designed to offset the costs associated with import competition and outsourcing, has often missed the mark. Moreover, at roughly $1 billion a year, TAA amounts to only about 5 percent of total federal worker-adjustment assistance. At the state level, there are some encouraging new developments. Governors of both parties are customizing worker training to fit private-sector skill shortages through partnerships with companies, apprentice programs, and links to technical colleges and local universities. Last January, Governor Scott Walker (R-WI) announced specific actions in his State of the State address, including "A Better Bottom Line," an employment program for people with disabilities, inspired by an initiative of Governor Jack Markell (D-DE). A focus on helping veterans move into civilian jobs would further broaden the appeal of such bipartisan plans. Principles to Guide a "Helping America to Work" Approach A jobs-policy overhaul should be guided by three core principles. First, all government efforts should concentrate on getting people—especially the long-term unemployed—jobs, instead of setting wages or just paying for training. The private sector should be drawn into the process, because private employers better grasp the needs, skills, and types of training required. On-the-job training, or training directly linked to job placement, offers both fundamental skills and employment. Government should help by removing barriers to work, such as overbearing, costly licensing requirements and constraints on job sharing. Second, if wages for entry-level jobs are too low for a living, supplement them with direct add-ons, such as wage subsidies or an expanded earned income tax credit. It is better to get the unemployed working again than to pay people to wait or artificially boost wages beyond workers' initial productivity or contribution to a business. Third, Congress should relax its rigid budget rules for programs that put people back to work. Innovations that return people to the workforce—such as relocation assistance for the long-term unemployed, transitional wage subsidies, and lump-sum unemployment payments—will increase overall economic output and generate new tax revenues that offset some of the costs. Congress should recognize this dynamic process in its budget-scoring rules. Taxpayers may be more willing to support public innovation if the government rigorously evaluates the results of new jobs programs and ends those that do not work. Accountability requires outcome measures, which are scarce in government. The Department of Labor currently spends only 0.1 percent of its employment-and-training budget on evaluation. The unemployed deserve access to what works rather than the perpetuation of programs that may not be effective. Instead of just adding layer upon layer of training programs, the government should cultivate a policy culture that experiments and tests—and then fixes, ends, or expands. An accountable government is more likely to be permitted and encouraged to adapt to changing needs. Proposals for Helping America to Work How might these principles work in practice? Consider one proposal to get the long-term unemployed into jobs: a temporary wage subsidy for employers who hire the long-term unemployed. Granted to the employer, a wage subsidy would reduce the effective wage a company would need to pay its new employee, inducing companies to hire more people than they otherwise would. This subsidy would benefit society by helping people regain employment, thereby avoiding future costs of continued long-term unemployment. This approach would harness the incentives and knowledge of the private sector. Private companies, not the government, would decide who to hire. The subsidy need not be large to create the right incentives. In 2013, earnings of full-time, year-round workers averaged about $50,900 for men and $40,600 for women. Many long-term unemployed probably earned less than these averages before they lost work. Perhaps $10,000 per worker over the first twelve months of employment would be enough and then $5,000 more over the next twelve months. To induce a company to retain a new hire for a meaningful time, wage subsidies could be paid after periods of work—for example, every three or six months. The main objection to such a scheme is the cost, but, in fact, wage subsidies would be a good deal for taxpayers. The fiscal cost of this wage subsidy depends on the number of new hires the program seeks to assist. An ambitious target of half a million new jobs per year equals about 25 percent of the new payroll jobs created, on average, in each of the past four years. For that hiring goal, the direct program cost would be about $5 billion in its first year and $7.5 billion thereafter. These costs would be offset by gains from larger payroll-tax revenues and, over time, a larger labor force. By enabling people to work, the program would boost output and taxes, while reducing federal transfer payments. If Congress recognizes these dynamic benefits, the net annual cost of this wage subsidy would be a fraction of its direct cost—and produce substantial human gains that are well worth the investment. A plan for "Helping America to Work" should encompass a number of other specific policies to help link workers to jobs, including the following: Harness current information technology to distribute information about job openings around the country and customize individual job searches. State governments could partner, for example, with private sector online job-matching providers to offer broad access to such sites for the unemployed. Help the long-term unemployed relocate to where the jobs are. The federal government, for example, could allow people to tap their tax-preferred savings accounts and build new worker-adjustment accounts that could be used to cover relocation expenses. Eliminate regulatory barriers to work. Today, U.S. cosmetologists average 372 days of training to earn a license. In Louisiana, florists require a license to practice. In Minnesota, manicurists require twice as much training time as paramedics. Easing both federal and state regulations would allow businesses to increase job sharing and thus to trim hours rather than jobs during down times. Other changes can support the employability of those in "nontraditional" work circumstances, such as single parents, parents raising children, and older workers. Conclusion Leaders of both parties have an opportunity to press a modern agenda for work, assistance, and trade. A vibrant economic recovery would tap the work and capabilities of every American. New policies, combined with rigorous evaluation of results, can do a far better job of putting Americans back to work. 
    Policy Innovation Memorandum by Matthew J. Slaughter and Robert B. Zoellick January 12, 2015 Renewing America
  • Monetary Policy
    Our Fed Dual-Mandate Tracker Affirms Taper Timing
    St. Louis Fed President James Bullard continues to burnish his reputation as the FOMC’s least predictable member, reversing course on policy for the second time in 3 months—going from dove to hawk and now back to dove again.  Having as recently as August publicly advocated a rate rise in early 2015, he is now calling for the Fed to halt its monthly taper of QE3 bond purchases, citing falling inflation expectations. But the Fed’s own preferred measure of inflation expectations, the 5-year 5-year forward breakeven inflation rate, has barely moved since the FOMC’s September meeting—down from 2.4% to 2.3%.  Furthermore, as the figure above shows, if we benchmark the Fed’s performance against its dual mandate of price stability and maximum employment, using the Fed’s own definition of each, we see that it has, since the start of the taper in January, been steadily on track towards the zero bliss point. Bullard has always defended his policy calls as data-driven, but in this case he seems to be navigating more by gut calls as to where the data may be moving in the future.  Our dual-mandate tracker suggests clearly that the Fed should stay the course on taper. Calculated Risk: FOMC Preview Financial Times: U.S. Federal Reserve Set to Halt Asset Purchases Bloomberg News: Treasuries Rise on Speculation Fed May Keep Low-Rate Policy Wall Street Journal: Fedspeak Cheatsheet   Follow Benn on Twitter: @BennSteil Follow Geo-Graphics on Twitter: @CFR_GeoGraphics Read about Benn’s latest award-winning book, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, which the Financial Times has called “a triumph of economic and diplomatic history.”
    Blog Post by Benn Steil and Dinah Walker October 27, 2014 Geo-Graphics
  • Fossil Fuels
    Which U.S. States Win and Lose Most From Falling Oil Prices?
    Oil prices are plunging. Which U.S. states will benefit most – and which are most at risk? A study that we published about a year ago looked at exactly this question. The research, by Mine Yucel of the Dallas Fed and Stephen Brown of UNLV, ranked Wisconsin, Minnesota, and Tennessee as the biggest potential winners, and Wyoming, Oklahoma, and North Dakota as those with the most to lose. Oil prices have fallen by about twenty percent in the last few months. Brown and Yucel combined statistical analysis of the historical relationship between oil prices and employment with current data about state economies to estimate what a twenty-five percent price rise would do jobs. They note that the same analysis can generate insight into the potential impact of a price plunge. The map below, which I’ve created by assuming that an oil price drop is as bad for jobs as an oil price rise is good for employment (Brown and Yucel discuss the value and limits of such an assumption in the paper), shows the results. Brown and Yucel add some additional insight into the dynamics at work here: “States like Texas and Louisiana that have downstream oil and gas industries that benefit from falling energy prices such as refining and petrochemicals would be less affected. In addition, states in which natural gas is more prominent than oil are likely to see less harm from falling oil prices. With the recent weakening in the relationship between oil and natural gas prices, a decline in oil prices does not necessarily imply as big a change in natural gas prices as it once did, lessening the effect of an oil price decline.” They also provide historical perspective: “When oil prices collapsed to near about eleven dollars per barrel in 1986, the Texas economy went into a deep recession for two years. Economic output contracted 5.6 percent and employment fell 1.1 percent…. Even though oil and gas extraction accounted for 19 percent of the Texas economy in 1981, that share was the second smallest among the eight oil-sensitive states (West Virginia was smallest). As a percentage of state GDP, the oil and gas sector accounted for 49 percent in Alaska, 37 percent in Wyoming, 35 percent in Louisiana, and 20 percent in North Dakota. The 1986 oil price crash also caused a recession in most of these states, with employment declines largest in Wyoming (-5.9 percent) and Alaska (-4.5 percent)—states with the largest oil and gas output shares.” The historical record – both anecdotal and leveraged using statistics – is far from a perfect guide to the future, particular with massive changes in the U.S. oil and gas industry in recent years. And the fall in prices isn’t yet remotely comparable to 1986. Nonetheless, if you’re looking to see where and how falling prices might help or pinch economically, the Brown and Yucel study is a great place to start.
    Blog Post by Michael Levi October 10, 2014 Energy, Security, and Climate
  • Sub-Saharan Africa
    Africa’s Youth Bulge a Big Burden
    This is a guest post by Diptesh Soni. Diptesh is currently a consultant in UNICEF’s public advocacy section and a recent graduate of the Columbia University School of International and Public Affairs (SIPA). The views expressed below are his personal views and do not reflect those of his employer. You can follow him on twitter at @dipteshpsoni. A recent report by the United Nations Children’s Fund (UNICEF) forecasts that if current trends persist, one in every four people on the planet will be African by the year 2100. Even accounting for a decline in fertility brought on by greater prosperity, UNICEF predicts that by 2050 alone, the number of Africans under the age of eighteen may swell to around one billion. The report concludes that more emphasis must be placed on access to reproductive health services, girls’ education, and vital statistics systems. Such numbers should inform development strategies and common perceptions on the African continent. The notion of a “demographic dividend” in Africa seems largely misguided, and should not be passively viewed as inevitable. The dividend arises when fertility rates fall due to better health outcomes, but this process has been slow to arrive in Africa. Some claim that a large pool of labor can provide an engine of growth through expanded light manufacturing, but the fact is that African labor markets are currently unable to absorb a vast and growing supply of workers. With some notable exceptions, low-wage manufacturing jobs have remained in Asia and the steady growth in labor saving technology also bodes poorly for a manufacturing revolution in Africa, all while service-led growth has severe limitations. Education must be made a key priority for donors and governments across the continent. Although school enrollment for children in Africa has improved significantly in absolute numbers over the last two decades, these gains have been undermined by the steadily increasing population (see chart below). Evidence abounds that investments in education, especially when targeted towards girls and women, help develop a productive and resilient workforce. Recent studies from the Center for Global Development in Washington, DC, reinforced by Nobel laureate Erik Maskin of Harvard University, show that investing in quality education can boost skills development and reduce in-country inequality. No country exemplifies the challenges and ambiguities of demographic and economic growth like Nigeria. News of Nigeria overtaking South Africa as the largest economy on the continent was met with much excitement. However, with a rapidly growing population of almost 180 million and an adjusted GDP per capita less than one fifth of South Africa’s, Nigeria is desperately poor by any measure. Its economy remains dependent on oil exports and much of the new foreign investment ventures are directed at tapping the growing market for fast-moving consumer goods, rather than expanding labor absorbing industries. With little economic diversification and a weak education system the chances that Nigeria’s youth of today or tomorrow will find productive employment and sustainable livelihoods are reduced. A population that is both underemployed and undereducated breeds an environment of discontent that can provide a large recruitment base for extremist groups like Boko Haram. The Ebola crisis has shown that problems of poverty are not beholden to national boundaries. If African governments, their donors, and their private sector partners do not adapt strategies to mitigate the dangers of demographic explosion, future generations of Africans and non-Africans will be much worse for it. Explore the data for Generation 2030 | Africa here: data.unicef.org/gen2030/
    Blog Post by Guest Blogger for John Campbell September 5, 2014 Africa in Transition