Monthly Archives: February 2018

Dr Christian Siegel

Biased technological change and employment reallocation

by Zsófia L. Bárány, Sciences Po and CEPR and Christian Siegel, University of Kent. Discussion paper KDPE 1801, February 2018.

Non-technical summary:

It is well known that technological change is not only one of the key drivers of overall economic growth, but also has implications for inequality.

Developed economies have seen a large reallocation from goods to the service sector. In the US for example, while the goods sector accounted for about 44% of total hours worked in 1960, by 2010 this was down to just 21%. The economic literature on structural transformation typically explains these changes by pointing to differences in productivity growth across sectors. As goods and services tend to be complements in consumption and labor productivity grows faster in goods than in other sectors, supply outgrows demand for goods, leading to a reduction of employment in the goods sector and a rise in service employment.

A different strand of literature has documented the polarization of occupational employment. The demand for labor in traditionally middle-earning occupations has fallen, resulting in a reduction in their employment share and their wages compared to low and high-earning jobs. Again the main explanation put forward in the literature is one based on biased technological change, in this case at the level of tasks. The argument is that the advent of computers and information and communication technologies adversely affected workers in occupations more intensive in routine tasks (routine occupations), which are in the middle of the wage distribution, and complemented workers performing abstract tasks, at the top of the wage distribution.

A closer look at the data shows that the contraction in goods sector employment happened exclusively through a reduction of routine employment, and vice versa almost all of the decline in routine employment occurred in the goods sector. These patterns not only highlight that there is a close connection between the sectoral and occupational employment reallocations, but also are the reason for why it is difficult to identify the true nature of technological change. In this paper we take a new approach to disentangle to what degree technological change is truly biased across sectors and to what degree across occupations.

In our analysis we focus on the production side of the economy without imposing a priori restrictions on how technological change occurs. Specifying a flexible model that is consistent with structural change and labor market polarization, we start from the assumption that a job’s productivity is specific both to the occupation and to the sector of the worker. Making some assumptions about the interactions between different occupations (i.e. the sectoral production function), we use US data over 1960 to 2010 on income shares of various occupations within a sector, as well as relative prices of sectoral outputs and overall growth in GDP per worker, to infer how productivities have evolved over time for each sector-occupation cell.

We then look for common factors in technological change to gauge the extent to which productivity growth is specific to certain sectors (after controlling for the role of occupations) or to certain occupations (controlling for sectors). Our results show that most of productivity changes are not neutral, but biased across occupations (around 70%) and to a lesser extent across sectors (around 5%), and that a significant part of technology is specific to the sector-occupation cell (around 25%). Moreover, our model highlights that by far most of the observed employment reallocations are due to occupational differences in technological change.

We view our analysis as a first step towards evaluating policies in the rapidly changing labor markets. Recently much of the political debate has focused on active labor market policies (such as training programs), and on protectionist policies aiming at maintaining certain industries of the home economy. While in our model there are no frictions or externalities which would justify these policies, our results shed light on the technology side of the economy and attribute a large role to occupation-specific changes. An implication of these findings is that policies targeting workers’ occupational choice might be better at improving labor market outcomes than industrial policies.

You can download the complete paper here.

Prof Tony Thirlwall

Great Thinkers in Economics: James Meade

The 21st volume in the Great Thinkers in Economics series, edited by Professor Tony Thirlwall, has been published on James Meade. James Meade won the Nobel Prize for Economics in 1977, mainly for his work in international economics, but he also made major contributions to many other fields of economics.

For details of all the volumes in the Great Thinkers in Economics series, go to http://www.palgrave.com/series/15026.

Developments in the economy since the Referendum vote

Jagjit Chadha, Professor at the School of Economics and currently on secondment as Director of the NIESR (National Institute of Economic and Social Research), returned to Kent on 22 February to give an interesting and topical talk attended by students, staff and members of the public. This was the first in a series of academic community events hosted by the School.

Professor Chadha spoke about his findings and the Institute’s investigation into the developments in the UK economy since the June 2016 referendum. The talk was followed by an informal drinks reception.

The complete talk can be viewed here.

Staff members receiving their Above & Beyond Awards

Amrit, Christian and John receive Above and Beyond Awards

We’re thrilled to announce that Amrit Amirapu, Christian Crentsil and John Peirson from the School of Economics have been awarded Kent Union Above and Beyond awards, with a particular mention to Amrit, who received not only one but two awards. Amrit, Christian and John are pictured above with MSc student, Ollie, who presented them with the awards.

Above and Beyond awards recognise tutors who have exceeded expectations and gone “above and beyond” to enhance the student experience.

Students commended Amrit on being helpful and approachable, passionate about his subject and for providing great feedback. Christian received the award for his enthusiasm and the energy, effort and care that he puts into teaching, which helps students achieve more. John was praised for being an excellent lecturer and offering fantastic careers advice.

The School of Economics would like to congratulate Amrit, Christian and John for their wonderful achievements.

High-speed rail links cannot boost regional economies on their own

High-speed rail links do not inherently lead to major economic growth in the regions in which they are built but are necessary to help attempt to rebalance the economy by providing more opportunities for businesses in the areas they serve.

This is the key finding from a paper by Emeritus Professor Roger Vickerman, entitled Can high-speed rail have a transformative effect on the economy?

The paper looked at the impact of the high-speed rail links in North-West Europe as well as the UK’s only high-speed route, HS1, which runs between London, Ebbsfleet, Ashford and Folkestone and serves other Kent stations including Dover, Canterbury and Ramsgate.

Since HS1’s introduction there has been a notable growth of knowledge-based employment in clusters around locations on the line. For example, Ashford has seen knowledge-based employment grow by 40% between 2008 and 2014 and Canterbury has grown by 50%.

These findings have implications for the planned HS2 line by suggesting that it could lead to more knowledge-based businesses being able to set up in locations such as Birmingham and Leeds by taking advantage of quicker journey times between one another and to London.

However, despite the growth in knowledge-based employment along the HS1 route, there is no clear evidence that this on its own drastically helped boost the economies of the region.

In fact, some areas that were linked to the HS1, such as Dover, Canterbury and Ashford, had high levels of unemployment in 2014, the end of the time period the research covered, while others away from the line did in Kent did not, showing HS1 itself did not stave off unemployment risks.

Despite this, the paper notes HS2 is a very different proposal to HS1, linking far larger urban locations than HS1, which was essentially a regional commuting link, so it is not possible to definitively say the outcomes of HS2 will mirror that of HS1.

In conclusion, Professor Vickerman notes that while creation of new high-speed rail routes can undoubtedly have economic benefits other factors, such as better land use and labour market policies and skills development are required to realise this potential.

The paper has been published in the journal Transport Policy.

-ENDS-

Original article by Dan Worth, University of Kent Press Office

Integration of humanitarian migrants into the host country labour market: evidence from Australia

The Journal of Ethnic and Migration Studies has featured a research paper by Dr Matloob Piracha. The paper entitled ‘Integration of humanitarian migrants into the host country labour market: Evidence from Australia’ (with Isaure Delaporte) was published on 6 February. You can read the full article here.

Abstract 

The objective of this paper is to identify the factors that influence the labour market integration of humanitarian migrants in the host country. A number of employment outcomes are examined including access to employment, access to stable employment, the wage/earnings level and the education-occupation mismatch. By using a recently collected panel survey data in Australia, the study shows that pre-migration education, work experience, previous migration episodes, as well as English proficiency, English training, study/job training undertaken in Australia and social capital form important determinants of the labour market integration of refugees in the host country. The paper highlights the differentiated impacts of these resources on the refugees’ outcomes at six months, one year and two years after arrival.

Road pricing only solution to UK traffic congestion

Emeritus Professor Roger Vickerman from the School of Economics explains why the UK must adopt a new pricing system for road use to tackle the ever-worsening congestion.

‘Once again road congestion has hit the headlines with a report that UK drivers spend an average of 31 hours a year in traffic jams.

‘This is far from new and the solution has been available for decades. What is needed is a nationwide system of charging for roads by use – road pricing. We already have blunt instruments such as the London Congestion Charge, but a sophisticated system of electronic tolling would charge drivers for their actual use of the system and by differentiating by time of day can encourage those with flexibility to adjust their journeys to times of lower traffic volumes.

‘The current system of charging motorists is a tax on car purchase and ownership, and doesn’t distinguish by area of residence or actual use. Cars spend an average 95% of their life parked. Residents of rural areas, many of whom have no alternative to using a car, typically travel on the least congested roads, but pay the same in road tax and fuel duty. Such drivers would be better off under a system which charged for the actual use of roads that reflected levels of congestion.

‘The usual response is to call for more road building, and whilst that and junction improvements can help in some cases, the evidence suggests that traffic typically expands to fill the space available. Eventually, as with any limited resource, the only solution is one that uses price as a means of allocation – that’s how we charge for the alternatives such as bus, rail or air.

‘The overall cost to road users would be less; the estimated average cost of that 31 hours of wasted time is £1168; that would pay for a lot of miles. Politicians need to grasp this nettle now.’

-ENDS-

Original article by Dan Worth, University of Kent Press Office

Dr Alfred Duncan

Lloyds stops Bitcoin risk with credit card buying ban

Dr Alfred Duncan provides insight on why Lloyds Bank has moved to stop its customers buying Bitcoin on credit cards.

‘Lloyds Bank has banned credit card purchases of Bitcoin. Concerns about Bitcoin purchases and consumer credit risk may seem puzzling: surely using credit to buy Bitcoin is no more risky than using credit to buy burgers, holidays and clothes. Unlike a burger, at least Bitcoin has a chance of not being worth nothing a year from now.

‘But credit-funded purchases of Bitcoin tell banks something about their borrowers. If you are short of cash, then you may use a credit card to help pay for holiday or an appliance. If you seek protection from theft and fraud, then you may use a credit card while abroad. But if you are using your credit card to buy Bitcoin, then you are telling your bank that you would like to have more risk in your life.

‘The problem then, with using your credit card to buy Bitcoin, is not that the price if Bitcoin may fall. Everything else that you purchase with a credit card will fall in value with certainty. The problem is that the price of Bitcoin may rise.

‘Customers who buy Bitcoins with their credit cards are betting on Bitcoin going up and are passing on some of the risk to their bank. In this case, Lloyds would prefer these customers look elsewhere for credit. For the same reasons, banks typically restrict the use of credit cards to fund purchases of shares and financial derivatives.’

-ENDS-

Original article by Dan Worth, University of Kent Press Office