Germany does not have minimum wages, but there is currently a renewed debate about their introduction. As collective bargaining is largely handled at the sectoral level, one idea is to adopt sectoral minimum wages, for example by negotiating them within collective bargaining. In some sectors, there is already an informal wage this way, but this could be formalized. Given this idea of sectoral minimum wages, it is of interest to see which sectors would support them.
Ronald Bachmann, Thomas Bauer and Hanna Kröger use a survey of 800 firms in 8 sectors and uncover some interesting patterns. It looks like minimum wages are most supported where they would raise barriers of entry for competitors. This means that agreeing on a minimum wage is getting very close to cartelization. This is a feature of the fact that negotiations are done at the sectoral level. It would lead to a reduction in the number of firms, and likely to a reduction in employment as well, but for a different reason than usual with minimum wages: the cartelization reduces output and thus the labor force required for production. I suspect that if the minimum wage were set nationwide, though, this kind of support would largely vanish.
What is wrong with European central banking: the view from Cyprus
These are times where policy coordination between central banks and fiscal authorities seems to be particularly welcome. For one, monetary policy, which seems to be the only sustained and coherent policy, cannot right the ship beyond the short term, and the short term is shorter than the current crisis. For two, fiscal authorities are completely stuck in political wars exactly at the wrong moment. Upcoming elections in Europe and the United States certainly do not help in that. Central bankers have been rather frustrated with the political climate, yet they are still willing scape goats to deflect the furor of the public about unpopular policies.
But sometimes, enough is enough. One such case has been the open criticism of the central banker of Cyprus, who railed against the ineptitude of its government which has completely ignored his advice. Cyprus may not seem a big deal, yet it is a major banking center that may go down with Greece depending on how things unravel there. And this central banker, whose mandate was not renewed, is also not a nobody, as he was previously a senior official at the Board of Governors of the US Fed.
In probably his last paper while in Cyprus, Athanasios Orphanides summarizes all what is wrong with central banking in Europe (Cyprus is part of the monetary union). He recognizes that banking supervision must be taken much more seriously by central bankers, as the stability mandate that was typically meant for prices and sometimes employment or output is now interpreted to include the financial sector as well. Of course, this implies that central banks need to take more responsibilities in supervising the financial all the way to regulating individual institutions, an authority they do not always have at this point. But foremost, Orphanides argues that the biggest liability is economic governance. This is especially important within a monetary union where several governments need to agree. A more uniform fiscal policy would help tremendously, especially when monetary policy, in its more rudimentary form, is applied uniformly across the union. Worse, problems from fiscal policies that are not sustainable in the long term are magnified in a monetary union. You need rules and you need to adhere to them. Politicians are rather bad at this. Central bankers much better.
But sometimes, enough is enough. One such case has been the open criticism of the central banker of Cyprus, who railed against the ineptitude of its government which has completely ignored his advice. Cyprus may not seem a big deal, yet it is a major banking center that may go down with Greece depending on how things unravel there. And this central banker, whose mandate was not renewed, is also not a nobody, as he was previously a senior official at the Board of Governors of the US Fed.
In probably his last paper while in Cyprus, Athanasios Orphanides summarizes all what is wrong with central banking in Europe (Cyprus is part of the monetary union). He recognizes that banking supervision must be taken much more seriously by central bankers, as the stability mandate that was typically meant for prices and sometimes employment or output is now interpreted to include the financial sector as well. Of course, this implies that central banks need to take more responsibilities in supervising the financial all the way to regulating individual institutions, an authority they do not always have at this point. But foremost, Orphanides argues that the biggest liability is economic governance. This is especially important within a monetary union where several governments need to agree. A more uniform fiscal policy would help tremendously, especially when monetary policy, in its more rudimentary form, is applied uniformly across the union. Worse, problems from fiscal policies that are not sustainable in the long term are magnified in a monetary union. You need rules and you need to adhere to them. Politicians are rather bad at this. Central bankers much better.
Cashless banking in informal economies
We are used now to playing with plastic, yet we still hold cash. The fact is that there are still plenty of occasion where only cash can be used for transactions, either because the amount is very small, or because for some reason the merchant does not want to accept plastic. Not infrequently, it is because of the fear of a paper trail, or rather an electronic trail, or because of some tax avoidance. The fact that plastic money discourages the latter should be seen as beneficial, right?
Victor Olajide thinks that is not necessarily the case when the informal sector is substantial. Taking the example of Nigeria, he points out that if the informal sector cannot use cash anymore, then this could have strong implications for banking, as reserve requirements rely on deposits, and those could go missing. That does not seem to be a major problem to me, as reserve requirements can be changed or redefined. I find more problematic that the Central Bank of Nigeria is pushing for a cashless economy while many of the market participants simply do not have the means to tool up for it. I think there are more important issues to tackle in Nigeria than going cashless.
Victor Olajide thinks that is not necessarily the case when the informal sector is substantial. Taking the example of Nigeria, he points out that if the informal sector cannot use cash anymore, then this could have strong implications for banking, as reserve requirements rely on deposits, and those could go missing. That does not seem to be a major problem to me, as reserve requirements can be changed or redefined. I find more problematic that the Central Bank of Nigeria is pushing for a cashless economy while many of the market participants simply do not have the means to tool up for it. I think there are more important issues to tackle in Nigeria than going cashless.
How did online journals change the economics literature?
Scientific publication is not the same as it was, now that we can easily access the literature over the Internet. No more trips to the library, much fewer waits for interlibrary loans, and no more chasing who took or misplaced the volume in the racks. But did all this change anything in the way we publish our results?
This is what Timo Boppart and Kevin E. Staub study by looking at the diversity of topics covered in journals and how the availability of on-line publication would have changed that. The idea is that on-line publication allows to discover and read more material, and one may in particular stray away from the usual topics. No doubt about that. But I wonder why Boppart and Straub have this focus on journals. After all, working papers is where its at in Economics, and journal readership has not really increased, I believe. The treatment variable is the share of cited articles available on-line the year before publication. This seems so wrong. There is no way it takes only one year from the literature search to the print issue. Not in Economics, where I would say it is a minimum three years, with really rare cases below that. In fact, a good share of mine took more than a year from final acceptance to actual publication. Then, what about working papers? This is what people read, not articles.
This is what Timo Boppart and Kevin E. Staub study by looking at the diversity of topics covered in journals and how the availability of on-line publication would have changed that. The idea is that on-line publication allows to discover and read more material, and one may in particular stray away from the usual topics. No doubt about that. But I wonder why Boppart and Straub have this focus on journals. After all, working papers is where its at in Economics, and journal readership has not really increased, I believe. The treatment variable is the share of cited articles available on-line the year before publication. This seems so wrong. There is no way it takes only one year from the literature search to the print issue. Not in Economics, where I would say it is a minimum three years, with really rare cases below that. In fact, a good share of mine took more than a year from final acceptance to actual publication. Then, what about working papers? This is what people read, not articles.
The origin of de-unionization in the United States
For better or worse, union are particularly weak in the United States. This was not always so. Why unions declined is not limited to Reaganism which merely accelerated a trend already present in the data. The difficulty is to explain this trend which is for example only present in some other countries and nowhere as pronounced.
Emin Dinlersoz and Jeremy Greenwood explore whether this has to do with the distribution of income, at least in the US. Indeed, over the past century and a half, union membership rates followed an inverted U-shape, while the income share of the top 10% did the opposite. Greenwood and Dinlersoz think that both can be explained by the evolution of skill-biased technical change: basically, while the assembly-line was the main means of production, unskilled labor garnered a higher higher income share and unions were strong, but both decline since as information technology became important. Nice story, but I wonder whether it can apply to more observations (i.e., countries). Also, I wonder whether the timing of events works out. Indeed, the ratio of of unskilled to skilled workers went into a tailspin starting in 1945, while union membership started decreasing only in 1955 and the income distribution started getting more skewed in the 1980's.
Emin Dinlersoz and Jeremy Greenwood explore whether this has to do with the distribution of income, at least in the US. Indeed, over the past century and a half, union membership rates followed an inverted U-shape, while the income share of the top 10% did the opposite. Greenwood and Dinlersoz think that both can be explained by the evolution of skill-biased technical change: basically, while the assembly-line was the main means of production, unskilled labor garnered a higher higher income share and unions were strong, but both decline since as information technology became important. Nice story, but I wonder whether it can apply to more observations (i.e., countries). Also, I wonder whether the timing of events works out. Indeed, the ratio of of unskilled to skilled workers went into a tailspin starting in 1945, while union membership started decreasing only in 1955 and the income distribution started getting more skewed in the 1980's.
The value of human capital
How much is human capital worth? This is an important question when one this about the amount of resources that goes into education, both from public and private funds, as well as the substantial opportunity cost of attending school instead of working. The traditional approach is to compare the labor income of people with different levels of education and then come up with a return on investment or more often a return of one additional year of schooling.
Mark Huggett and Greg Kaplan take a different approach. They consider human capital to be an asset and decompose it into a bond (with fixed return), a stock (with variable return) and a residual. This becomes then a standard asset pricing problem. Then taking the labor income flow as a representation of the dividends from this portfolio, they can infer its composition, and how it changes over time. Using data for US males, it turns out the value of human capital is much lower than previously estimated. This is because the stochastic discount factor covaries negatively with earnings (they take into account capital income as well). Also, the bond component dominates the portfolio, especially for the college educated, which is not surprising given the large variance of income and employment among the less educated. What is more surprising, I think, is that stock market and human capital returns are not correlated. I would have thought that the business cycle would have had a strong impact there.
Mark Huggett and Greg Kaplan take a different approach. They consider human capital to be an asset and decompose it into a bond (with fixed return), a stock (with variable return) and a residual. This becomes then a standard asset pricing problem. Then taking the labor income flow as a representation of the dividends from this portfolio, they can infer its composition, and how it changes over time. Using data for US males, it turns out the value of human capital is much lower than previously estimated. This is because the stochastic discount factor covaries negatively with earnings (they take into account capital income as well). Also, the bond component dominates the portfolio, especially for the college educated, which is not surprising given the large variance of income and employment among the less educated. What is more surprising, I think, is that stock market and human capital returns are not correlated. I would have thought that the business cycle would have had a strong impact there.
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