Featured Paper

Brave New World

One of the pressing questions arising from the rapid adoption of artificial intelligence and other automation technologies is whether they will create more jobs than they eliminate. So far, research has focused mostly on very specific technologies, such as industrial robots or certain applications of AI, or an array of digital technologies commonly referred to as “automation technologies”. It would be great if the analyses were more fine-grained, both as regards individual technologies and the occupations and regions most affected.

Have Skills, Will Travel

Just fresh out of high school, you face a fairly momentous decision for your future: what will offer you a better wage premium over your career life? So far, the answer has usually been “a PhD”, because it translates into around 17% more income over the years.

But things are changing. Some emerging professions, such as those in the field of artificial intelligence or the green transformation, are new enough that there are not many people around with formal university education in either. And that means that in these fields labour supply currently does not meet industry demand.

Unlikely Megastars

Central bankers do not have it easy. In the good old days before the financial crisis of 2008, their audience was mainly financial market participants, who were well versed on financial and monetary issues. After the crisis, however, they saw the need to also communicate with the general public—i.e., firm managers and households—since they shape aggregate demand and inflation, given that changes in their beliefs affect their economic choices regarding investment or consumption spending. So, financial market gurus and firms and Jane and John alike prick up their ears when central bankers, unlikely megastars of our day and age, report on their meetings, everyone lapping up their words.  

A Woman's Touch

What is the ultimate measure of success for a manager? Shareholder returns? Peer recognition? Satisfied workers? Own paycheck? It depends on whom you ask. If you ask the managers themselves, it is, well, peer recognition is important, yes, but paycheck? Yeah, that’s the one.

Mr. AI Will See You Now

Large language models, a kind of artificial intelligence trained on billions of texts found on the Internet, have proved impressive at a number of tasks previously thought of as only possible for humans. Poems, term papers, computer code, essays, even academic research. It is no stretch of the imagination then to assume that service providers relying to a large extent on freely available information could be rendered obsolete by advanced AI tools.

The Dragon and the West

Europe is still scratching its collective head about what to do with China. Too important to ignore, too economically relevant to decouple from, too politically different to just keep up business as usual. So, de-risking is the word of the day, whatever that means.

But where do the differences between Europe and China come from? And do they imply that both are fated to remain so institutionally different forever?

Early-Bird Advantage

At first sight it is a bit of a paradox. On the one hand, it has long been clear that the skills you acquire, say, at university no longer will see you through to the end of your career life: you have to reinvent yourself several times along the way just to stay current. On the other hand, the skills that you learn early in your career will boost your earnings throughout your entire working life.

This suggests that vocational education, which typically imparts skills early in a person's career, can have a long-lasting positive impact.

Girls Next Door

Nowadays we are surrounded by peer networks. There are those virtual social ones, where you work hard at adding peers (“friends”) as if they were scores in a game, most of which you barely remember and will never meet again. Then there are those professional networks where your peers are called “connections” and where past job experiences tend to wax lyrical. But the peer network that counts, according to a recent CESifo study, is the one you had outside school when you were a high school student. Provided, that is, that that peer network contained a significant number of females.

Working from Home, Shopping Close to Home

The covid pandemic lent respectability to working from home, which means that the proportion of people wearing slippers to the “office” and working with a cat on their lap may stay higher than before the lockdown forced them into such sacrifices.

Wheels of Fortune

It is a common reality: aiming to enhance its human capital formation, a developing African country builds new schools and then… the boys are there, most girls aren’t. It is not just deep-seated cultural constraints that keep the girls away: it’s the walking to school and back, with whistling at best and sexual harassment at worst. Not to mention the 110-minute trek—one way—that saps energy and torpedoes punctuality.

Unlikely Bedfellows

Conventional wisdom has it that Chinese foreign aid could sway public opinion in the recipient countries towards autocratic political systems, since its aid comes free of the pesky finger-wagging associated with Western official development assistance. With such no-strings-attached aid pouring into Africa, Asia and Latin America, the Western camp frets that it may be losing the soft-power contest for the promotion of democratic values, right in the midst of the strategic competition between the US and China. Should the West then relax the conditionality it always attaches to its aid?

When Skipping School is a Good Deed

What happens when politicians get Greta-Thunberg’d into paying attention to young voices? They start listening, it appears, to judge from the way a good many of them are trying to out-green each other of late. Wait, does that mean that they can actually be swayed by people who can’t even vote yet? Sounds outlandish.

So maybe the real question should be: What happens to the parents of these young people who take to the streets to voice their concerns about climate change? New research by a group of scholars at the ifo Institute and colleagues from the Technical University Braunschweig and the University of York decided to investigate what effects youth protest movements have on the political arena, and how these effects come about.

Eat Your Greens

We are all for green, of course. Good for the health—mine, yours, the environment’s, the planet’s and all that. But wait, you don’t mean to put it right next to me, right? And what, I have to pay for it?? That’s the moment when the politician proposing a given green initiative goes into many voters’ won’t-vote-for-that-one list.

Aside from behavioural changes, two things are needed to slow down global warming and environmental degradation: technological solutions and political acceptance. But the more progress is done on the technological front, the stronger the political challenge seems to grow. Small wonder then that some politicians hesitate before introducing green policy measures. What’s worse, they may refrain of proposing such policies altogether. And that could prove disastrous.
 

Does Democracy Make You Taller?

Democracies have lately been derided by some as being less effective in fighting pandemics: the waves of covid-19 infections sweeping through the democratic West seem to be getting bigger and bigger, with no end in sight, while less democratic places seem better at keeping the virus at bay. Does that mean that democracy is bad for your health?
 

Watch Out: Mr. Robot is Here

Not content with just taking jobs away, robots are also giving a drubbing to the marriage prospects of male workers more exposed to robot job penetration, as new CESifo research shows. Robots are also changing fertility patterns.

 

Take me to Your Leader

Monetary incentives are often the tool of choice for companies to improve team performance and foster idea creation. But that costs money. New CESifo research has shown an equally effective approach that costs nothing.

Crime, Inequality and Subsidized Housing: Evidence from South Africa

This study is the first to establish a link between unequal housing conditions and crime in South Africa. After apartheid ended, only 65% of households lived in formal housing. Housing programs make a significant contribution to increasing equality and fighting crime.

Welfare Reforms and the Division of Parental Leave

Financial incentives influence fathers' decision on how long to take parental leave. Following the 2019 directive on Work-Life Balance, all EU member states must by 2022 provide each parent 9 weeks of paid (non-transferable) parental leave. This research paper studies how the 2019 directive can be implemented to better achieve a more equal sharing of the burden of raising children.

Informed Choices: Gender Gaps in Career Advice

Does a person's gender affect what they learn from working professionals about career options? Yes, because female students receive substantially more information on work-life balance than their male peers. Most of the time, this information is negative. As a result, women in this situation are more concerned about work-life balance and are discouraged from pursuing their preferred career path.

Working from Home: Too Much of a Good Thing?

Too much working from home reduces the performance of the overall economy because the productivity is negatively affected by over-exploitation of ICT and by the absence of face-to-face contacts. The authors recommend working from home 20%–40% of the time on average.

Manpower Constraints and Corporate Policies

Well-equipped firms with growth potential in particular suffer from manpower constraints. This constraint varies significantly across time and industries, a novel insight of this data analysis. To reduce obstacles to a country's growth, in the short term, immigration policies can target the inflow of specialized labor; in the long term, more should be invested in educating the low-skilled segment of the population.

Risk Exposure and Acquisition of Macroeconomic Information

Many people are uncertain about their own exposure to risks such as recessions (e.g., unemployment). This might lead them to obtain information in the wrong places and make poor economic decisions. Policymakers can provide individuals with information on their exposure to such risks, which may help to direct people’s attention to relevant pieces of news, such as economic forecasts.

Competitive Gerrymandering and the Popular Vote

When siblings argue about how to divide a cake, one of them should cut it and the other sibling should be the first to choose his/her own piece. Under the ruling system in the United States, the voter map is divided up by the ruling party for its own benefit (“gerrymandering”). The new game theory system presented here involves both parties in order to create a fair voter map.

Give Me Your Tired and Your Poor: Impact of a Large-Scale Amnesty Program for Undocumented Refugees

Large-scale amnesty programs are a politically sensitive issue, as countries make it difficult for refugees to gain access to the labor market through regulation. The data analysis conducted here encourages governments to facilitate refugees’ path into the formal labor market. In the case of Colombia, this integration had no or negligible effects on the local workforce.

Public Discourse and Socially Responsible Market Behavior

Problems such as climate change and environmental pollution can be traced back to markets where not all costs of production and consumption can be taken into account. The usual measures of taxation or regulation can be ineffective due to their complexity and political inertia. An effective measure, on the other hand, is the participation of all market participants in a public debate that changes market behavior towards greater overall welfare.

Trade, Education, and Income Inequality

New trade relations can aggravate income inequality in a country. Less educated workers are not mobile enough to move to the more lucrative commercial sector in the short term. A high standard of education and long-term trade relations reduce this income inequality.

Oil Wealth and Property Rights

In countries with significant oil wealth, economic and political power lies disproportionately with the oil elites. This has the effect of keeping property rights weak, which results in lower economic performance overall. The opposition is too weak to lead the way out of this “resource curse.” It is possible that international shocks, such as a pandemic, will tip the economic and political balance toward stronger property rights.

Cloud Computing and Firm Growth

Cloud technology makes IT equipment more accessible to firms and facilitates a remote and mobile workforce. The authors analyze newly available data at the company level for the United Kingdom. They find that the use of cloud technology enables companies to grow faster, particularly those in the start-up phase. Cloud also allows older established companies to reorganize and allocate employment away from the headquarters. High-speed fiber broadband is an important prerequisite for both new and established companies to successfully implement cloud solutions.

Are Economists Getting Climate Dynamics Right and Does It Matter?

The assumptions of important economic climate models do not correspond to the actual dynamics of climate change. Because some of their forecasts overestimate warming, they give the false impression that there is no way the goals of the Paris Agreement could be met. For climate policy decisions to be correct, these economic models must be brought into line with the state of the art in climate science.

Going Back to School Takes Time: Evidence from a Negative Trade Shock

Economic shock events have long-lasting effects. A person who loses their job due to a crisis takes three to four years to decide to go back to school to obtain a higher qualification. This is the result of a study that evaluated the behavior of Canadian forest workers in the wake of the US subprime mortgage crisis. Another result of the study was a call for politicians to simplify the process for re-enrolling in school.

Positive Spillovers from Negative Campaigning

In a field experiment, the authors analyze the spillover of a candidate vilifying his opponents in an election campaign. Resulting positive spillover effects are observed for the third, idle candidate. The candidate running the negative ad is perceived as less cooperative, less likely to lead a successful government, and politically more extreme.

Climate Policy, Stranded Assets, and Investors’ Expectations

Transitioning to a climate-friendly economy inevitably entails decommissioning fossil-fuel assets. The share prices of these investments will depreciate. The authors show that investors expect compensation for this. Policymakers should provide clear signals about their plans for decarbonization and financial compensation. This is important because shocks to investors’ expectations about the stringency and consequences of climate policies constitute a risk for financial markets.

Partisan Bias in Inflation Expectations

The authors find that inflation expectations in Republican-dominated US states were higher than in Democrat-dominated US states when Barack Obama was US president. Republican voters may well have expected government spending to increase, which is likely to give rise to higher inflation. Political parties should consider voters’ misperceptions about economic conditions. 

Exclusive Data, Price Manipulation, and Market Leadership

Whether the collection of data on customer behavior by companies like Amazon, Tesco, or Starbucks can entail pro- or anti-competitive effects is largely debated. The authors find that both directions are possible, depending on the size of a company’s exclusive customer list. Mandatory data sharing can be an effective tool to restore market competition, but it should be considered on a case-by-case basis.

Do Immigrants Affect Crime? Evidence from Panel Data for Germany

Countries that accept large numbers of immigrants in a short space of time will see increased rates of criminality – so goes the frequent argument. A recent CESifo Working Paper focuses on the effect the number of immigrants has on the crime rate. The study found that no positive correlation can be established and the authors appeal for a more rational debate on large influxes of refugees.

The Congestion Relief Benefit of Public Transit: Evidence from Rome

In a recent CESifo Working Paper, Martin W. Adler, Federica Liberini, Antonio Russo, and Jos N. van Ommeren analyze traffic in Rome, Italy based on new data. They find out how travel time can be reduced for both private and public transport participants. A summary and the full version of this interesting working paper are available on our website.

The Turnaround of the Swedish Economy: Lessons from Large Business Sector Reforms

In a recent CESifo Working Paper, Fredrik Heyman, Pehr-Johan Norbäck, and Lars Persson study how a country can improve productivity growth in its business sector and reach its growth potential.

Tariffs and Politics: Evidence from Trump’s Trade Wars

In a recent CESifo Working Paper, Thiemo Fetzer and Carlo Schwarz studied how countries designing a retaliation response face a trade-off between maximizing political targeting and mitigating domestic economic harm. To quantify the degree of political targeting and to shed more light on underlying trade-offs, the authors developed a novel simulation approach that constructs a host of alternative retaliation baskets that the EU, China, and other countries could have chosen.