New Economist

Do extroverts have more fun?

This week I will be featuring a few of the papers delivered at the European Association of Labour Economics 2007 annual conference, held in Oslo last month. The first is a fascinating Finnish paper, Personality Traits and Earnings: Evidence from Finland (PDF), which used longitudinal survey data to examine whether personality traits have any impact on earnings. Written by Jutta Viinikainen, Katja Kokko, Lea Pulkkinen, Jaakko Pehkonen from the University of Jyväskylä,  looked at five personality traits: neuroticism, extraversion, agreeableness, conscientiousness, and openness to experiences. They conclude that "extraversion has a significant positive effect on earnings when gender, education, work experience and unemployment history ..are controlled for.

The other four personality traits appear not to matter. Nor did the authors find any gender differences in personality traits and earnings.

Of all five personality traits only extraversion turned out to have a significant impact on earnings. According to the results a rise in an extraversion score by one point is associated with an increase of about 17 percent in wages. A person high in extraversion is typically outgoing, enthusiastic, active, and assertive. The results thus suggest that these characteristics are valuable in the labor market.

Somewhat surprisingly, conscientiousness turned out to have no effect on earnings after gender, years of education and work experience along with career-related variables were controlled for (see Tokar et al. 1998). As conscientiousness can be described by adjectives such as responsible, reliable and organized, it might be expected that more conscientious workers would have higher earnings. However, according to our results this is not the case.

Do extroverts have more fun? Who knows. But they certainly appear to be paid more.

Happy-clappy

If proof were needed of the growth of the 'happiness industry', it comes in the plethora of forthcoming conferences on the subject. Here are the ones I've comes across; there could well be others:

* Happiness and the Meaning of Life, University of Birmingham, 19 May 2007

* Wellbeing: a common approach, London, 22 May 2007

* Happiness and its Causes, Sydney, 14-15 June 2007

* International Conference on Policies for Happiness, Siena, 14-17 June 2007

* International Conference on Subjective Well-Being and Subjective Indicators of Quality of Life, Berlin, 5-6 July 2007

* Happiness in Global Perspectives & Local Interpretations, Bangkok, 18-19 July 2007

* The 8th Conference of the International Society for Quality-of-Life Studies, San Diego, 6-9 December 2007

The economics of the Stern Review

For those interested in the economics of climate change, Birmingham University's Economics department and the Institute for Energy Research and Policy are holding a one day workshop on The Economics of the Stern Review.

The purpose of this workshop is to understand why Stern emerges with policy prescriptions which appear to differ from those supplied by previous economic analyses of the climate change problem. Did earlier analyses neglect important aspects of the climate change problem which Stern has managed to address or has the economic and scientific literature upon which they relied moved on? Or is the case that the Stern Review itself is in some respects deficient? The workshop brings together leading members of the Stern Review, contributors to the Review process and economists who have been openly critical of the Stern Review.

It is billed as "an academic debate between the proponents and opponents of the Stern Review of the Economics of Climate Change". The workshop takes place on Friday 9 March at 0930-1745.

Watch out Chicago!

Tomorrow a thousand or two economists descend on the windy city for the American Economic Association's annual gabfest. The conference program is online, as are many of the conference papers. Over coming days I'll be posting here about a few that caught my eye...

Three great American disinflations

While there is substantial evidence that deflations or disinflations are often quite costly, there is less
agreement about what factors contributed to high real costs in some episodes, or why some deflation epsiodes are most costly than others. Clearly, a better understanding of the factors that influence the costs of monetary contractions matters for monetary policy.

A new paper by Michael Bordo, Christopher Erceg, Andrew Levin, and Ryan Michaels, Three Great American Disinflations (PDF), tries to shed light on the issue by examining three famous episodes of deliberate deflation or disinflation in US history, including episodes following the Civil War, World War I, and the Volcker disinflation of the early 1980s. These episodes, which were associated with widely divergent effects on the real economy, were analyses within the context of a stylized DSGE model. Here's what they found:

Our model simulations suggest that the relatively robust output growth that occurred during the post-Civil war deflation of the 1870s was facilitated by the highly predictable nature of the price decline. By analogy, a more predictable policy of gradual deflation could have helped avoid the sharp post-WWI downturn.

However, our analysis of the Volcker period emphasizes that the strong argument for gradualism that is apparent under a transparent and credible monetary regime becomes less persuasive if the monetary regime lacks credibility: in the latter case, gradualism may simply serve to prolong the suffering associated with a disinflationary episode.

Thus, securing the benefits of gradualism requires a supporting institutional framework and communication strategy that allows the private sector to make reliable inferences about the
course of policy.

Our model simulations indicate how a more predictable policy of gradual deflation could have helped avoid the sharp post-WWI depression. But our analysis also suggests that the strong argument for gradualism under a transparent monetary regime becomes less persuasive if the monetary authority lacks credibility; in this case, an aggressive policy stance (as under Volcker) can play a useful signalling role by making a policy shift more apparent to private agents.

So gradualism - "a more predictable policy of gradual deflation" - only works well when monetary authorities already have credibility. Without that, "an aggressive policy stance (as under Volcker) can play a useful signalling role by making a policy shift more apparent to private agents."

This is one of the papers delivered last week to the fourth International Research Forum on Monetary Policy in Washington, DC. Organised by the Federal Reserve, ECB, Goethe and Georgetown Universities, it featured some high-level particpants and papers.

Productivity analysis and measurement

The productivity debate continues. Last week saw a two-day OECD Workshop on Productivity Analysis and Measurement in Bern. This week I will be featuring several of those papers, along with one or two others I've spotted. For starters, here is the agenda for the Bern conference, with links to the papers and presentations:

Monday, 16 October 2006

Session 1 (9h15-12h00) Productivity growth in Switzerland

     1.   Keynote address: The challenges for increasing productivity growth in Switzerland
           Aymo Brunetti, Chief Economist (State Secretary for Economic Affairs Switzerland)

     2.  Productivity growth and innovation in Switzerland - An international perspective (pdf),
           Presentation (PowerPoint)       
           Dominique Guellec (OECD)

     3.   MFP measurement: from data pitfalls to problem solving – the Swiss way (pdf)
           Ruth Meier  (Swiss Federal Statistical Office)

    4.   Innovation, Technology and Productivity in Switzerland - A Micro Data Analysis
           Jan-Egbert Sturm (KOF - Swiss Institute for Business Cycle Research)

Session 2 (12h00-15h45): Productivity, innovation and technology

      5.   Research and Development as a Value Creating Asset (pdf)          
            Emma Edworthy and Gavin Wallis (Office for National Statistics, United Kingdom)

      6.   Dutch retail trade on the rise? Relation between competition, innovation and productivity (pdf)
            Harold Creusen, Björn Vroomen, Henry van der Wiel and Fred Kuypers

      7.   Infrastructures and ICT. Mesurement Issues and Impact on Economic Growth (pdf),
            Presentation (PowerPoint)         
            Matilde Mas (Ivie and University of Valencia)

      8.   Empirical analysis of the effects of R&D on productivity: Implications for productivity measurement? (pdf), Presentation (PowerPoint)
            Dean Parham (Productivity Commission, Australia)

Session 3 (16h15-17h30): Measuring and analysing labour input

      9.   Labour input productivity: comparative measures and quality issues  (pdf)         
            Antonella Baldassarini and Nadi Di Veroli (ISTAT)

    10.   Are Those Who Bring Work Home Really Working Longer Hours? (pdf), Presentation (PowerPoint)
            Lucy Eldridge and Sabrina Pabilonia (U.S. Bureau of Labor Statistics)

Tuesday, 17 October 2006

Session 3 continued (9h00-10h10): Measuring and analysing labour input

    11.   Growth in Euro Area Labour Quality  (pdf)
            Presentation (PowerPoint)         
           Guido Schwerdt and Jarkko Turunen (European Central Bank)

    12.   The Comparative Level of GDP per Capita in Canada and the United States: a Decomposition into Labour Productivity and Work Intensity Differences (pdf)      
            Jean-Pierre Maynard (Statistics Canada)

Session 4 (10h40-15h45): New productivity measures for OECD countries

    13.   Productivity Measurement at Statistics Netherlands: A Progress Report (pdf)
            Presentation (PowerPoint)
            Dirk van den Bergen, Myriam van Rooijen-Horsten, Mark de Haan and Bert M. Balk
            (Statistics Netherlands)

    14.    Estimates of industry level multifactor productiviy in Australia: Measurement initiatives and
issues (pdf)
            Carl Obst, Australian Bureau of Statistics

    15.   Estimates of Labor and Total Factor Productivity by 72 industries in Korea (1970-2003)   (pdf)
            Presentation (pdf)
            Hak K. Pyo (Department of Economics, Seoul National University) and
            Bongchan Ha (Korea Institute for Industrial Economics and Technology)
            Keun Hee Rhee (Korean Productivity Center)

    16.   Productivity in the European Union: A Comparative Industry Approach (pdf)
 Mind the gap! International comparisons of productivity in services and goods production  (pdf)
            Bart van Ark, Marcel Timmer (University of Groningen) and Mary O’Mahony (National Institute for Economic and Social Research, United Kingdom)

    17.    A Net Profit Approach to Productivity Measurement, with an appication to Italy (pdf)
            Presentation (PowerPoint)
 Carlo Milana (ISAE, Italy)

    18.   Measuring the Contributions of Productivity and Terms of Trade to Australia’s Economic  Welfare (pdf), Presentation (PowerPoint)         
           Erwin Diewert (University of British Columbia, Canada) and Dennis Lawrence (Meyrick Associates)

Session 5 (16h15-17h30): Issues in productivity analysis

    19.   Privatisation vs. productivity in Poland (pdf)
            Izabella Zagozdzinska and Jacek Kotowski (Central Statistical Office, Poland)

    20.   Does Sweden give away its TFP for free?  (pdf), Presentation (PowerPoint)         
            Tomas Skytesvall (National Accounts, OECD) and Hans-Olof Hagen (Statistics Sweden)

Wednesday, 18 October 2006

Session 5 continued (9h00-10h45): Issues in productivity analysis

    21.  Firm demography and Aggregate Productivity Growth (pdf)
           Barbro Widerstedt (Swedish Institute for Growth Policy Studies)
           (Presented by Lars Fredrik Andersson, Swedish Institute for Growth Policy Studies)

    22.  Trends in ‘structural’ productivity levels in the major industrialised countries (pdf)      
           (Renaud Bourlès (Université de la Méditerranée) and Gilbert Cette (Banque de France)

    23.  Quantifying the Productivity Counterpart of Outsourcing in the Italian Manufacturing Industries (pdf)       Francesco Daveri (University of Parma), Massimiliano Iommi (ISTAT) and Cecilia Jona-Lasinio
            (ISTAT)

Session 6 (11h15-12h15): Panel discussion – conclusions and future orientations

Panelists: Gilbert Cette, Banque de France
                Graeme Davis, Treasury Department Australia
                Erwin Diewert, University of British Columbia, Canada
                Gerardo Layva Parra, INEGI, Mexico
                Paul Schreyer, OECD

Discussion session on productivity levels and industry PPPs (13h15-15h15)

This session is intended to review some of the recent work on measurement of productivity levels and industry PPPs. There will be only short presentations, and the focus will be on comments from experts. This session is organised in cooperation with the EU KLEMS consortium. Participation is in principle on invitation, but all participants of the workshop on 16-17 October who also wish to attend are welcome to do so. Please contact Paul Schreyer ([email protected]) or Bart van Ark ([email protected]).

    24.   Reader on Productivity Levels (pdf)
            Bart van Ark and Marcel Timmer (University of Groningen) and Dirk Pilat (OECD)

    25.    PPPs for Industry Output: A New Dataset for International Comparisons (pdf)         
            Bart van Ark, Marcel Timmer and Gerard Ypma (University of Groningen)

    26.   International Comparisons of Industry Output, Inputs and Productivity Levels: Methodology and New Results (pdf)
            Marcel Timmer and Robert Inklaar (University of Groningen)

Were women’s wage customary?

The most intriguing opening sentence I have read today:

Throughout history and all over the world women have earned lower wages than men.

It comes from a paper by Joyce Burnette of Wabash College, which she is presenting to her fellow economic historians at Yale later today. Her paper, Were Women’s Wage Customary? (PDF), examines the gap between men and women's wages over the centuries and whether it reflected custom or market forces:

The best way to resolve the question of who was right is to look for evidence that is not the expression of someone’s opinion, but is direct evidence from output. Evidence from production functions gives us such direct evidence. The available evidence from production functions uniformly indicates that women had lower marginal productivity than men.

Using census data to estimate the marginal products of men and women in the US in 1860, Craig and Field-Hendrey find that women were about 60 percent as productive as men in agriculture, and 40 to 50 percent as productive in manufacturing. Cox and Nye use data on nineteenth-century French manufacturing firms to estimate the marginal product of male and female workers and find productivity ratios ranging from 0.37 to 0.63. When they test for wage discrimination, they find no evidence of wage discrimination.

Benjamin and Brandt use a 1936 household survey in China to estimate the contribution of men and women to family income in general and crop income specifically; they find that women contributed 62 percent as much as men to farm production.60 Women are also less productive than men in agriculture in developing countries today; Jacoby finds that women were 46 percent as productive as men in Peruvian agriculture in the 1980s. While the estimates of the productivity ratio vary depending on the industry and location, all of the estimates suggest that women were substantially less productive than men in manual labor.

Thus I conclude that women’s wages, at least in competitive sectors such as agriculture and textile manufacturing, were not customary in the sense that they were lower than women’s productivity.

Provocative stuff, and not something most male economic historians would ever dare argue.

What does globalisation mean for monetary policy?

Globalisation poses many puzzles for the making of monetary policy, but until quite recently few central bankers had given it much thought (aside from the effect of Chinese goods deflation). Just under a year ago though Dallas Fed president Richard Fisher gave a speech at Harvard University on Globalization and Monetary Policy. In it he argued that in an globalising world, the usefulness of measures such as the (domestic) output gaps and Phillips curve was in question:

How can economists quantify with such precision what the U.S. can produce with existing labor and capital when we don’t know the full extent of the global labor pool we can access? Or the totality of the financial and intellectual capital that can be drawn on to produce what we produce?

As long as we are able to hold back the devil of protectionism and keep open international capital markets and remain an open economy, how can we calculate an “output gap” without knowing the present capacity of, say, the Chinese and Indian economies?

How can we fashion a Phillips curve without imputing the behavioral patterns of foreign labor pools? How can we formulate a regression analysis to capture what competition from all these new sources does to incentivize American management?

Until we are able to do so, we can only surmise what globalization does to the gearing of the U.S. economy, and we must continue driving monetary policy by qualitative assessment as we work to perfect our quantitative tool kit. At least that is my view.

The speech, one of the first to broach the subject, was overlooked by most - but not all. Earlier this year Janet Henry at HSBC produced a report on measuring the global output gap, and the implications for US inflation. Fisher returned the favour today, visiting London to speak at an HSBC seminar on Monetary Policymaking in a Globalized World. Fisher restated the case for looking beyond national borders:

In U.S. monetary policymaking circles, we work with cost calculations, assumptions about production functions and formulae for policy optimization that were developed before the world economic map was redrawn by the entry of new players and new technologies that changed our “ways of doing things.”

Consequently, the majority of the economic indicators we use to develop monetary policy today only look within our own borders. We measure domestic wages and incomes, domestic capacity utilization, domestic prices and domestic industrial activity. Where we do look beyond our border, we focus narrowly on foreign activity’s impact on our economy through trade and current account balances and relative currency values.

What about global wages, global capacity utilization and global industrial activity? What about the reconfiguration of assignments and tasks within businesses that take place in cyberspace, enabled by the Internet and intranet? I submit that these nondomestic activities and trends are growing more important to our economic welfare and that they condition how we develop and frame monetary policy.

Fisher made a plea for better data and analytical tools. He singled purchasing power parity (PPP) out for criticism, dubbing it "one of my pet peeves":

The raw material for PPP calculations is gathered under the guidance of the International Comparison Program, or ICP, which is coordinated by the World Bank and the OECD. Upon close examination, the ICP’s price comparisons appear to be fraught with errors. The problems seem to stem from the minuscule amount of resources devoted to gathering raw data. The rich countries of the EU, for example, devote something like one staff member per annum to gathering data for the ICP, a grossly deficient manpower commitment when you consider how many staff years go into the construction of national consumer price indexes and other metrics.

One can only imagine how shoddy the situation is in less developed countries. Until statistical agencies like the ICP develop accurate measurements of purchasing-power-adjusted output, this oft-quoted measurement device will be of limited utility for policymakers and might even lead to false conclusions.

In many emerging economies, the data needed to measure output gaps "simply don't exist". He gave other examples too:

For example, despite the boom in fixed-asset investment under way in China, there are no official estimates of its capital stock, which is a basic component in measuring an output gap. Data that might serve as a substitute, such as capacity utilization or unemployment figures, are spotty at best, released erratically and difficult to interpret.

As to the implications for the FOMC? Fisher concluded on this note:

My point is simply that the committee’s wisdom would be enhanced, and the economy would benefit, from having analytical tools to help us build more practicable models than what we currently have to guide our thinking as we make monetary policy in a complicated, reconfigured, globalized world. Today I appeal to you and your firms to help us develop these analytical tools either directly or by demanding them in the marketplace, where you wield considerable influence.

Migration, trade, and development

Last week the Dallas Fed hosted a one-day conference on Migration, Trade, and Development. Today they posted the papers and presentations online: 15 in all. The conference's four themes were:

* Session I: The Migration, Trade, and Development Nexus
* Session II: The Politics of Migration and Trade
* Session III: Migration and Development: The Role of Remittances
* Session IV: The Historical Relationship Between Migration, Trade and Development

The impact of uncertainty shocks

Major shocks to the economic and political system, such as the assassination of JFK or 9/11, cause large but short-lived bursts of uncertainty. A paper to be given today by Stanford's Nick Bloom to the Yale University macroeconomics workshop develops a general structural model for such shocks, and in particular their effects on employment, investment and productivity growth.

I build a model with a time varying second moment, which is numerically solved and estimated using firm level data. The parameterized model is then used to simulate a macro uncertainty shock, which produces a rapid drop and rebound in employment, investment and productivity growth, and a moderate loss in GDP.

Bloom finds large falls, which rapidly bounce back that:

Hiring and investment rates fall dramatically in the four months after the shock because higher uncertainty increases the real option value to waiting, so firms scale back their plans". But once uncertainty has subsided activity quickly bounces back as firms address their pent-up demand for labor and capital.

Productivity also falls after the shock, by reducing the rate of re-allocation from low to high productivity firms - but again rapidly bounces back.

In sum, these second moment effects generate a rapid slow-down and bounce-back in economic activity, generating a short-run loss of GDP, but with little longer run impact.

An important paper, accompanied by good charts: The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation (PDF)