New Economist

Economist job of the week: Director of Global Economics, European University Institute

I rarely give academic economist jobs much attention, having chosen a different career path. But one plum job did catch my eye recently. The European University Institute are looking for a Director for their Programme on Global Economics:

The Programme on ‘Global Economics’ will focus on the connected fields of the economic and financial trends of the global economy and the mechanisms of global economic governance. The programme should develop a research agenda departing from the consequences of economic globalisation and the changing global economic order. Among the many possible themes from which such agenda can emerge are international trade, global economic imbalances and crises, exchange rates and capital movements, the reform of the international economic and monetary system and the regulation of the financial system.

As for the job itself:

The Programme Director will be responsible for the overall conception and direction of the Programme, the co-ordination of activities across different projects, the reporting, dissemination, and training activities. The Director of the Programme will ensure the fulfillment of high scientific standards and the outstanding quality of all these activities.

...Preference will be given to candidates with the potential to establish links and generate synergies with other research strands at the Global Governance (see below). Initial financial support will be available to help the Programme Director to launch the Programme.

The EIU is based in San Domenico di Fiesole, in the foothills surrounding Florence (Firenze). A more pleasant location, or interesting role, is hard to imagine.

The deadline for applications is 3 June 2012. More details on their website here.

UK recession roundup: the magnificent seven

A lot of interesting newspaper articles and blog posts on the Q1 UK GDP results have been published since my post earlier today. Here are links to seven of the best, along with an excerpt from each:

1. NYT columnist and uber econoblogger Paul Krugman (@NYTimeskrugman) lambasts the UK Government's austerity plans: Cameron’s Remarkable Achievement

Now Britain is officially in double-dip recession, and has achieved the remarkable feat of doing worse this time around than it did in the 1930s. Britain is also unique in having chosen the Big Wrong freely, facing neither pressure from bond markets nor conditions imposed by Berlin and Frankfurt.

Now, the defense I hear from Cameron apologists is that the austerity mostly hasn’t even hit yet. But that’s really not much of a defense. Remember, the austerity was supposed to work by inspiring confidence; where’s the confidence? Basically, the expansionary aspect should already have kicked in; it’s all contraction from here.

Needless to say, Cameron and Osborne insist that they will not change course, which means that Britain will continue on a death spiral of self-defeating austerity.

2. NIESR director Jonathan Portes (@jdportes on Twitter) manages to quote both Keynes and Popper in his blog post, also critical of the government: On GDP figures today, credibility, and Popperian falsifiability..

Is there a credible alternative? Of course there is. You don't have to be Keynes to think so. And you don't have to take my word for it. Ask the IMF. Or Martin Wolf at the FT. Or Ian Mulheirn at the Social Market Foundation. Or John Van Reenen at the LSE. As I said over a year ago, the real hit to credibility comes from sticking to unsustainable policies in the face of the facts.

George Osborne says that we are all "at the outer fringes of the international debate." That's clearly false as far as serious economists go. But if he's right in terms of UK government policy, the main losers won't be us: it will be the unemployed, especially the young.

3. BBC economics editor Stephanie Flanders (@BBCStephanie) provides a good account of the numbers, including the impact of the Q1 construction decline, in her post: No recovery for UK: No let up for ONS

Are the official numbers wrong? An impressive number of independent experts, with access to a lot less information than the ONS, are today convinced that they are.  ...I don't know which is more striking, the doubts about the ONS numbers - or the supreme confidence of their critics.

4. Guardian economics editor Larry Elliott (@BusinessDesk) believes the double-dip recession affords George Osborne no escape from this reality

The coalition's fear is that the government would be punished by the markets if it went soft on austerity – and there is no obvious magic bullet for Osborne to fire. Since the recession began, the Treasury has borrowed £500bn, the pound has depreciated by 20%, interest rates have been pegged at 0.5% for more than three years, and the Bank of England has plonked £325bn of newly created money into the banking system. The result has been the weakest recovery of the past 100 years.

There are ideas knocking about. ...[but] Osborne has no Plan B and shows no sign of wanting one. He has made reduction of the budget deficit the judge and jury of Britain's performance, talking tough in the hope that the financial markets will spare Britain the harsh treatment they have meted out to the weaker members of the euro. Until now they have, but slow growth has meant progress in getting the deficit down has been much slower than the chancellor planned, and the credit rating agencies are getting jittery. Two of them have put the UK's prized AAA rating on negative watch.

A second recession hard on the heels of the first gives the (accurate) impression that the economy is a disaster area and makes a downgrade more likely.

5. Investment Chronicle writer and prolific econoblogger Chris Dillow (@CJFDillow) explains why there is such scepticism about the GDP estimate: What recession?

Today’s figures conflict with at least five other findings:

- Purchasing managers surveys found a “marked expansion” in construction activity, and the strongest growth in services activity since Q2 2010.

- Official figures show that retail sales volumes rose 0.8 per cent in the quarter. Would consumers really have gone on such a spending spree of the economy was shrinking?

-The ONS reported last week that in the three months ending February, total hours worked rose by 1.4 per cent. This can only be reconciled with falling GDP either if hours fell sharply in March or if productivity has slumped.

- The NIESR estimates that GDP grew by 0.1 per cent in Q1.

- The latest British Chambers of Commerce survey found a “welcome improvement” in the economy.

6. Telegraph assistant editor Jeremy Warner (@jeremywarnerUK) argues that the Chancellor must ignore this double-dip recession

Personally, I wouldn't try to deny that fiscal consolidation is damaging growth; the more important question is whether the Government has any choice in the matter. In my view it does not. We'll never know what would have happened to interest rates had Labour won the last election and pursued a different policy, but the evidence of sharply rising spreads around the political negotiations that led up to the formation of the Coalition is that like the eurozone periphery, they might well have run out of control.

For a highly indebted economy such as the UK's, with an overgrown banking sector, this was not a risk any sensible government could have afforded to run. The banking sector, not to mention many households and businesses, would have been tipped over the edge by any significant rise in short and long term interest rates.

Stagnation in the UK economy is not the result of government policy as such, but is part of the adjustment process to the financial crisis. The idea that you should counter a crisis caused by too much debt by taking on more of it runs counter to common sense.

7. Finally, housing writer/blogger Jules Birch (@jules_birch) argues that housebuilding "will deliver the quickest boost to the economy and generate the most jobs": If you’re in a hole, start digging

Judging from his speech at the Home Builders Federation (HBF) this week Grant Shapps seems to think that all he has to do is sit back and wait for all his initiatives, from FirstBuy to NewBuy, from cutting red tape to boosting self-build, from the New Homes Bonus to extending the right to buy, to pay off. ...Yet for all the rhetoric and all the new wheezes, housebuilding remains stuck at around half the level needed to meet demand and nowhere near his ‘gold standard’ of building more homes than Labour.

Relying on big housebuilders that care more about rebuilding their balance sheets than building homes will not work. A serious programme of investment in building new homes and refurbishing empty ones could be channeled through smaller firms, housing associations and local authorities and combined with reform of the housebuilding industry. That would start to generate the jobs and deliver the boost for the economy we need at the same time as tackling the housing shortage. Borrow to invest, change the borrowing rules or try something new like quantitative easing for housing. We are in a hole. It’s time to start digging.

UK’s double dip recession: your questions answered

This morning the Office for National Statistics published preliminary estimates of an -0.2% fall in March quarter 2012 GDP. This follows a -0.3% contraction in Q4, so pulling the UK into a ‘double dip’ recession (the first since the 1970s). Below are some frequently asked questions, and my response.

Was the fall a surprise?

Most forecasters were expecting very modest growth in Q1, with the median estimate (according to Bloomberg) for a +0.1% increase. These forecasts were in line with most leading indicators and partial indicators, which pointed to sub-trend growth last quarter.

Though disappointed, however, I doubt many commentators (including myself) were that surprised. Preliminary GDP numbers are notoriously volatile, and there are several variables which can unexpectedly throw the result (more about that later).

Why did growth fall in Q1?

The services sector, which accounts for more than three-quarters of output, is not in recession - it rose a modest 0.1% in Q1 (a lot lower than business surveys and retail sales suggested). Industrial production fell by -0.4%, but that alone would not have been enough to produce a negative number. What dragged it lower was a -3% fall in construction output, which detracted 0.2 percentage points from the headline number. Without that fall, GDP would have been flat last quarter.

Should we believe these estimates?

Not particularly. Preliminary GDP estimates in the UK are based on less than half the data that go into the final national account estimates. The rest are extrapolated or imputed. They are frequently subject to large downward (or more commonly, upward) revisions. In a year or two’s time we could well discover there was no ‘double dip’ recession after all.

Former MPC member Andrew Sentance gave a powerful example in a March 30 blog:

In the early 1990s, the recession appeared to continue through 1992 and into early 1993. At the time, it was believed to be the longest recession that the UK had experienced since the Second World War. The most recent data show the decline in GDP coming to an end in late 1991, exactly when Norman Lamont declared he could see the “green shoots of recovery”. He was right, though ridiculed at the time.

Most economic commentators are likely to react with a degree of scepticism to today’s numbers, for three reasons. First, past GDP estimates have experienced major revisions. Second, there are serious quality concerns about some of the inputs, especially construction. Third, and most important, because these estimates are at odds with most of the other main indicators of economic activity. The numbers simply don’t gel.

So we shouldn’t be too worried?

Yes we should. There is a real risk that the headline contraction, reinforced by ‘doom and gloom’ stories the media will pump out over coming days, will weaken already soft consumer confidence and spending, discourage British business from hiring or spending, and deter foreign investment. If Britons talk themselves into a funk we could see what (to me at least) looks like a temporary soft patch into a more serious and protracted downturn. It’s all about Keynes ‘animal spirits’, as Akerlof and Shiller and others have noted.

How will the Government respond?

Calls for the Chancellor, George Osborne, to abandon (or at least modify) his fiscal austerity plans will grow. However ministers are terrified at the prospect of losing their AAA rating, and there are few signs of a ‘Plan B’ in the works. Indeed on Monday the Treasury chief secretary said he had asked Government department’s to identify another £16bn of cuts.

With the Office for Budgetary Responsibility set to downgrade its growth forecasts, larger spending cuts will be required simply to maintain the Government’s debt-to-GDP targets. So should the government cut even more, maintain its existing spending plans, or rethink its approach?

We can expect a protracted debate in the UK about whether the pace of spending cuts is too high, and hence self-defeating. It is a view forcefully made by Jonathan Portes, and even the IMF in their January 2012 World Economic Outlook Update (PDF):

Overdoing fiscal adjustment in the short term to counter cyclical revenue losses will further undercut activity, diminish popular support for adjustment, and undermine market confidence.

Nudging behaviour: When incentives do (and don't) work

Behavioural economics has blossomed in recent years, to the point that the Fall 2011 edition of the Journal of Economic Perspectives can, along with articles on neuronomics, genetics and retirement, include a fascinating 20 page review paper on incentives. That's not surprising; a lot of people have taken an interest in them lately, including President Obama and Britain's prime minister.

When and Why Incentives (Don’t) Work to Modify Behavior was written by Uri Gneezy from the University of California–San Diego, Stephan Meier from Columbia Business School, and Pedro Rey-Biel at the Universitat Autònoma de Barcelona. It discusses when extrinsic incentives are more or less likely to alter behaviors in the desired directions, focussing on incentives in education, incentives for 'pro-social' behaviour, and incentives and lifestyle habits. They argue that although "incentives to modify behavior can in some cases be cost effective", there is also a danger that direct extrinsic motivations might 'crowd out' intrinsic motivations. For example:

...an incentive for a child to learn to read might achieve that goal in the short term, but then be counterproductive as an incentive for students to enjoy reading and seek it out over their lifetimes.

The authors conclude:

Our message is that when economists discuss incentives, they should broaden their focus. A considerable and growing body of evidence suggests that the effects of incentives depend on how they are designed, the form in which they are given (especially monetary or nonmonetary), how they interact with intrinsic motivations and social motivations, and what happens after they are withdrawn. Incentives do matter, but in various and sometimes unexpected ways.

To paraphrase Sergeant Esterhaus: Choice architects, let's be be careful out there!

Rethinking free trade?

Is support for free trade losing ground amongst economists? Business Week Washington bureau chief Jane Sasseen writes of an apparent shift in mood: Economists Rethink Free Trade:

..something momentous is happening inside the church of free trade: Doubts are creeping in. We're not talking wholesale, dramatic repudiation of the theory. Economists are, however, noting that their ideas can't explain the disturbing stagnation in income that much of the middle class is experiencing. They also fear a protectionist backlash unless more is done to help those who are losing out. "Previously, you just had extremists making extravagant claims against trade," says Gary C. Hufbauer, a senior fellow at the Peterson Institute for International Economics. "Now there are broader questions being raised that would not have been asked 10 or 15 years ago.

So the next President may be consulting on trade with experts who feel a lot less confident of the old certainties than they did just a few years ago. From Alan S. Blinder, a former vice-chairman of the Federal Reserve and member of the Council of Economic Advisers in the Clinton Administration, to Dartmouth's Matthew J. Slaughter, an international economist who served on President George W. Bush's CEA, many in the profession are reevaluating the impact of globalization. They have studied the growth of low-wage work abroad and seen how high-speed telecommunications make it possible to handle more jobs offshore. Now they fear these factors are more menacing than they first thought.

No one is suggesting that trade is bad for the U.S. overall. According to estimates by the Peterson Institute and others, trade and investment liberalization over the past decades have added $500 billion to $1 trillion to annual income in the U.S.

Yet concern is rising that the gains from free trade may increasingly be going to a small group at the top. For the vast majority of Americans, Dartmouth's Slaughter points out, income growth has all but disappeared in recent years. And it's not just the low-skilled who are getting slammed. Inflation-adjusted earnings have fallen in every educational category other than the 4% who hold doctorates or professional degrees. Such numbers, Slaughter argues, suggest the share of Americans who aren't included in the gains from trade may be very big. "[That's] a very important change from earlier generations, and it should give pause to people who say they know what's going on," he says.

The Stern report revisited

Australia's Productivity Commission today published a very useful assessment of the Stern report on climate change. The 125 page staff working paper by Rick Baker, Andrew Barker, Alan Johnston, and Michael Kohlhaas, The Stern Review: an assessment of its methodology, provides both an excellent summary and a balanced assessement of the report's analysis and recommendations. Press reports picked up on this particular connclusion:

The Review’s ‘urgent’ language can be explained by it being as much an exercise in advocacy as it is an economic analysis of climate change. It is not surprising, therefore, that reaction to it has been mixed.

Bias? To be sure. But the Commission paper remains broadly supportive of Stern's approach. They acknowledge the immense analytical challenges confronting Stern and his colleagues:

Rarely do analysts confront cost–benefit analyses with dimensions so long-term, uncertain and non-marginal. This places extraordinary strains on analytical techniques that generally have been devised for more conventional projects, and almost inevitably means that value judgements and ethical perspectives become more prominent.

The authors argue (p.xvi) that the Stern report has made an important contribution to the climate change debate:

There appears to be an emerging view that the Review has made a valuable contribution by establishing climate change as an economic issue that can be assessed through the ‘lens’ of a cost–benefit framework. Moreover, the Review team continues to engage with its critics and to expose its work (including rebuttals of critiques) to scrutiny. In some instances, its responses indicate acceptance of criticisms levelled. In this respect the Review continues to be important as a catalyst for engendering further analysis, development and refinement of the economics of climate change.

And conclude that:

Some of the criticisms of the Review are justified. The assertiveness with which some of the headline messages are delivered is not always matched by the caution attached to the evidence and analysis presented within the body of the report. And, relevant questions remain about the way the analysis was focused. It is based on a single high emissions scenario, inclines towards more pessimistic assumptions on damage costs, and adopts unconventional parameters for discount rates. These traits tend to escalate the present value of future costs and thereby elicit urgency in mitigation measures.

This is consistent with the Review authors’ apparent belief that, although catastrophic outcomes may be unlikely, the implications for future generations, were they to arise, would be so detrimental that it would be remiss to fail to give them sufficient weight. There is nothing especially wrong with this view — as one critic has conceded, the Review’s conclusions may well be proved right but for the wrong reasons. However, the Review presents itself to decision makers as yielding conclusions underpinned by conventional, rational economic analysis. In fact, the authors’ concerns about catastrophe in conjunction with their attendant ethical perspectives, permeate many stages of the analysis. More sensitivity analysis to highlight the consequences of alternative views and value judgements would have been valuable.

Anyone interested in climate change should read this paper. It is available free online.

The U.S. Earned Income Tax Credit: a primer

Bruce D. Meyer from Chicago University's Harris School of Public Policy Studies recently prepared a primer on the Earned Income Tax Credit for a conference organized by the Economic Council of Sweden. The paper, The U.S. Earned Income Tax Credit, its Effects, and Possible Reforms (PDF), is a useful primer on the subject. Here's what it covers:

In this paper, I first summarize how the U.S. Earned Income Tax Credit (EITC) operates and describe the characteristics of recipients. I then discuss empirical work on the effects of the EITC on poverty and income distribution, and its effects on labor supply. Next, I discuss a few policy concerns about the EITC: possible negative effects on hours of work and marriage, and problems of compliance with the tax system. I then briefly discuss some possible reforms to the structure of the current EITC.

And this is how Professor Meyer concludes:

In summary, the evidence indicates that the income distribution features of the EITC are quite good. It targets resources at those below the poverty line, particularly families with children. The empirical evidence on labor supply and marriage indicates that the incentives of the EITC are remarkably favorable given the resources transferred. However, there are still substantial opportunities for reform along several dimensions.

The reforms mooted include modifications to the tax schedule to reduce marriage penalties, simplifying eligibility criteria for the credit, and providing a more generous credit for single childless individuals or non-custodial fathers.

Why not target unit labour costs?

Perhaps I am missing some fatal flaw, but I have found  econoblogger KNZN's arguments in favour of central banks targeting unit labour costs quite persuasive. It has the advantage over inflation targets of excluding exogenous shocks. It also forces the monetary authorities to take more account of productivity. Here is the nub of KZNZ's arguments:

The main purpose of this approach is to have a simple and easily understood (by the market) answer to the question of how to react to supply shocks. The appropriate response to supply shocks is a matter of great controversy in macroeconomics: should a central bank accommodate supply shocks and let the inflation rate rise temporarily in order to avoid a recession or a slowing of growth (or a boom, in the case of a favorable supply shock), or should it lean heavily against the inflationary impact (or the deflationary impact) of supply shocks in order to pursue an unchanged target inflation rate? The labor cost target settles the question: if the shock is to domestic productivity or to the labor market, then lean against the inflationary impact; if the shock is entirely outside the domestic labor market and production process, then accommodate (except to the extent that you expect the shock to have indirect effects on productivity and the labor market, such as might arise, for example, from sticky real wages).

The main arguments against this approach I can think of are:
1) the objection that this would put undue focus on wage bargaining
2) estimates of unit labour costs are subject to considerable revision - unlike the CPI.

Mark Thoma's post is, as always, worth reading. Your views welcome.

Learning the lessons from Sweden's budget crisis

In the early 1990s Sweden's long-lived economic recession posed a crisis on three fronts: an exploding budget deficit, high interest rates and record-high levels of unemployment. While other countries may have balked, Sweden implemented the painful foscal measures required - and they paid off.

In a new Breugel essay Jens Henriksson, a senior official in the Swedish Finance Ministry at the time, draws on his experience of one of the most dramatic consolidation episodes of the post-WWII period. In 10 Lessons about Budget Consolidation, Henriksson gives a truly fascinating and informed first-hand account. Here are the first two paragraphs:

In its Economic Outlook of December 1994 the OECD projected that the Swedish public debt would explode. By the year 2000 the public debt was expected to hit a record 128 percent of GDP2. Today we know that the gross debt for 2000 turned out to be less than half that figure at 53 percent. And within a few years the budget deficit, from a high of over 11 percent of GDP, turned into a large surplus.

But getting there was not an easy task. During the consolidation of public finances, I had the opportunity to work in close contact with different ministers of finance in Sweden. This paper relates what this experience taught me about the political economics of budget consolidation.

There are lessons here for all countries facing budget problems - not just those intent on he cutting back the sizxe of the state. As he notes:

It is not a paper about how to get rid of the welfare state. On the contrary, it is about how to strengthen the economic foundations for whatever kind of social model that is preferred. The budget consolidation in Sweden was dramatic but it preserved,preserved, and in many ways modernised and improved, the
welfare system.

Previous post
* The joys of fiscal consolidation, 25 May 2007

UPDATE: See also a new Cleveland Fed discussion paper by O. Emre Ergungor, On the Resolution of Financial Crises: The Swedish Experience (PDF)

Sweden was one of the Scandinavian countries experiencing a severe financial crisis In the late 1980s and early 1990s. I review the policy choices and external factors that pushed the country’s financial system over the edge and then examine the steps the government took to make its resolution of the crisis one of the most successful in the past 30 years.

Globalisation - has the tide of opinion turned?

Reading recent debates about economic inequality in the United States, one senses the tide of opinion amongst both academic economists and the 'commentariat' has shifted. Concern is mounting, as are calls for action - even from traditionally orthodox sources. A similar trends now seems to be happening with the globalisation debate - and the two are not unrelated. Let's look at a few recent examples.

First, academic economists are becoming more concerned - and I don't just mean Paul Krugman or Joe Stiglitz. Former Council of Economic Advisers Matthew Slaughter and co-author Kenneth F. Scheve call for A New Deal for Globalization in the latest issue of Foreign Affairs magazine. Here's the abstract:

Globalization has brought huge overall benefits, but earnings for most U.S. workers -- even those with college degrees -- have been falling recently; inequality is greater now than at any other time in the last 70 years. Whatever the cause, the result has been a surge in protectionism. To save globalization, policymakers must spread its gains more widely. The best way to do that is by redistributing income.

The authors make explicit the link to living standards:

U.S. policy is becoming more protectionist because the American public is becoming more protectionist, and this shift in attitudes is a result of stagnant or falling incomes. Public support for engagement with the world economy is strongly linked to labor-market performance, and for most workers labor-market performance has been poor.

Second, respected global newspapers which in the past have stoutly defended the benefits of free trade and globalisation are now acknowledging the need to address the downsides as well. A recent Wall Street Journal piece by David Wessell, The Case for Taxing Globalization's Big Winners, which cited the Slaughter and Scheve paper, concludes:

What to do? To preserve political support for the globalization dividend, spread the benefits more broadly by taxing winners more and losers less.  ...Counting on the inevitability of globalization is imprudent; politics and policy can interfere. Expecting market forces to reverse the recent trend toward ever-bigger winnings for those at the top is unwise; the forces are too strong.

Taxing winners isn't without risk; as Mr. Summers says, globalization makes it easier for them to "pick up their marbles and go somewhere else." But using the tax code to slice the apple more evenly is far more palatable than trying to hold back globalization with policies that risk shrinking the economic apple.

Likewise, the Financial Times recently editorialised that Globalisation needs more than PR to be sold to its losers:

Globalisation has many virtues. Chief among them, it has contributed to an unprecedented accumulation of human wealth over the past decades and has helped lift a record number of poor out of poverty.

Yet globalisation has also created losers, particularly among the middle and lower classes in rich countries. Governments need to do more to help the groups most hurt. ...Governments need to be more active in helping the losers in rich countries. Instead of trying to safeguard industries in vulnerable sectors, governments need to be more inclusive and protect citizens.

...Many people do not mind that Bill Gates or Warren Buffett are worth billions. Both earned their wealth under the set of rules that apply to most others in rich countries. But the worry is that the global market system works to the disadvantage of people in already low-paid, low-skilled jobs in developed economies.

So government policies should focus on enabling the individual to feel as confident as possible within the global system. This could be through funding additional training or other means to help those who have lost their jobs to re-enter the market quickly. It might also imply a more progressive tax system, partial wage insurance, and untying social benefits such as basic healthcare from jobs to avoid undue fears of unemployment.

Third, even international orthodox defenders-of-the-faith such as the OECD and World Trade Organisation are starting to voice doubts. WTO head Pascal Lamy, for example, has been muttering about the dark side of globalisation. According to Reuters, last week he said in Beijing:

The speed of globalisation is affecting our social fabric in a much harsher way than in previous stages of globalisation. If globalisation has benefited some individuals, it has also weakened the position of many others, in particular the weakest and poorest among us, whether in developed or developing countries.

Hence, one of the most important challenges of our generation is to ensure that the benefits of globalisation are more fairly and widely shared, and in particular that they reach more people in developing countries.

The OECD's Employment Outlook 2007, likewise, included a chapter called 'OECD workers in the global economy: increasingly vulnerable?'. You have to pay for the report, but the 4 page editorial, Addressing the globalisation paradox (PDF), provides a good summary. The accompanying press release stated:

Rather than seeing globalisation as a threat, OECD governments should focus on improving labour regulations and social protection systems to help people adapt to changing job markets. That is the message from the 2007 edition of the OECD’s annual Employment Outlook. It reviews the possibility that offshoring may have reduced the bargaining power of workers, especially low-skilled ones. Whether real or threatened, the prospect of offshoring may be increasing the vulnerability of jobs and wages in developed countries.

...Globalisation requires mobility to ensure that workers are not trapped in jobs with no future. The report praises the so-called “flexicurity” approach adopted in Austria and Denmark to address this. In Austria, for example, workers have individual savings accounts, instead of traditional severance pay schemes, that move with them as they move jobs. If they lose their job, they can choose to withdraw funds from the account or save the entitlements built up towards a future pension.

Job losers should be compensated through social protection systems which are employment-friendly, the report notes. This can be done by providing adequate benefits hand-in-hand with “activation” policies which increase re-employment opportunities. Experience of Nordic countries and Australia shows that such policies, if well-designed, improve the job prospects of laid-off workers, thereby easing their fears about globalisation.

Addressing the labour arbitrage debate, the chapter authors concede that globalisation could "permanently increase" job insecurity for workers by making their employers more vulnerable to external shocks. But Angel Gurría, OECD secretary-general, moved to calm fears by saying that people's fears of losing jobs to foreign countries were often overblown: "Without job losses people are fearing the job losses." He called for politicians and journalists to foster a well-informed discussion of the benefits and costs of globalisation. "The story has to be told better," Mr Gurría said.

The FT was unimpressed. In its leader (cited above), it agreed that "better public relations may go part of the way", but governments still need to do more to help the losers. As Dani Rodrik notes:

You know something is going on when the FT berates globalization's cheerleaders for their complacency.

All just straws in the wind, perhaps. But I think I can can hear a gale coming...