Wednesday, October 18, 2017

Housing Markets: A European Perspective

Americans are all-too-familiar with issues in the US housing market: fluctuations in housing prices, along with problems of affordability and even homelessness. I'm not sure whether it is consoling or confounding to observe that similar problems exist across the European Union, but The State of Housing in the EU 2017, just published by Housing Europe, which is a federation of 45 national and regional housing-related organizations  that in turn represent about "43.000 public, social and cooperative housing providers in 24 countries." Here are a few comments  of the report:

  • "Residential construction as a share of GDP is currently just over half than its 2006 level, and construction is recovering much slower than prices. ... 
  • High building standards and requirements are posing a significant challenge to the provision of social and affordable housing in a number of countries. ,,, 
  • As a consequence of construction not keeping up with demand, housing shortages are emerging more clearly, especially in large cities/metropolitan areas with a growing population. ...
  • Shortage contributes to increasing prices and rents."

Overall, the homeownership rate in the EU is similar to the United States. But one ironical pattern is that the countries with the highest homeownership rates tend to be the formerly Communist states that were part of the Soviet Union, because people in those countries were able to receive ownership of the homes in which they had been living for a low price. The report explains:
"The most common tenure in Europe is owner occupation, with an average 69.4% of the population living in owner-occupied housing against 30.6% tenants. However, this masks wide variations in tenure distribution across countries. Most former communist countries of Central and Eastern Europe show a very high share of home-owners without mortgage, as after the fall of the communist regimes tenants were offered to buy the dwellings in which they lived at a low price. In Southern European countries outright ownership rates are also high. In most English-speaking and Nordic countries, Belgium and the Netherlands owners with outstanding mortgages are the most common tenure type. Only in Switzerland and Germany renting is more common than owning ..." 
Here's a figure showing homeownership shown by the blue bars across countries of the EU, while private rental appears as the orange bars.

In addition, homeownership rates have been declining in Europe in the 21st century:
"However, a number of countries have registered a decrease in the share of owner-occupation since the turn of the century, corresponding to an increase in the share of tenant households in the private rental market - for instance in Ireland and the United Kingdom. This trend is reflected in the EU average: keeping in mind that there are significant cross-country variations, since 2007 the share of owners with a mortgage increased slightly (from 25.6 to 27%), that of owners outright decreased (from 47.2 to 42.2%). Over the same period, the proportion of tenants at market price increased significantly (from 12.6 to 19.9%) and that of tenants paying a reduced rent decreased (from 14.6 to 10.9%) ..."
A further irony is that the high rates of homeownership in a number of eastern European countries may be deceiving in the sense that a substantial share of this housing stock is in extremely poor quality, and the new owners don't have the resources to fix it up. Others experience "fuel poverty," meaning they don't have the resources to keep the property heated or cooled. 

Affordable housing is a problem across the European Union, too (citations omitted):
"Housing costs is the single highest expenditure item for households, at about a quarter of total households’ budget in 2015, increasing from 21.7 in 2000 and 22.5% in 2005 to 24.4 in 2015 ... A large number of households are ‘overburdened’ by housing costs (i.e. they spend over 40% of their disposable income on housing) ...  11.3 of the overall EU population was ‘overburdened’ by housing costs in 2015 ... Most interestingly, although the average housing overburden rate for the overall population has remained more or less stable in recent years, the share of poor people overburdened by housing costs has increased significantly over the past decade, from 35% in 2005 to over 39% in 2015. This increase has been particularly steep in some crisis-ridden countries where the housing cost overburden rate among the poor has more than doubled over this period (Greece, Ireland, Portugal and Spain) ..." 
Affordable housing policy across the European Union has been shifting away from having governments building additional housing to providing housing support to those with lower income levels.
"[T]he literature on housing research broadly distinguishes between supply and demand side interventions or, sometimes also referred  to as object and subject subsidies. Historically, the housing shortages many European countries faced in the wake of World War I and II have been tackled by large government investment programmes into building new homes. Building subsidies were seen as the most effective way of dealing with this problem. In many cases this was achieved via the construction of public or social housing. As a result the most severe housing shortages have been alleviated and housing standards have improved. Despite the diversity of European housing systems and several exceptions in this regard (notably Austria for instance), there has been a noticeable shift from supply to demand side subsidies over recent decades in many European countries, with many now spending more on housing allowances than on supply-side subsidies or building new homes. A trend towards declining capital investment into housing has been particularly prevalent in countries with a comparatively large rented sector, including Denmark, France, the Netherlands and Sweden."

Finally, the report expresses considerable concern about the high cost of housing in cities. Along with the common problems of a rising urban population, and limited amounts of land in urban centers, issues of foreign investors buying up properties and existing owners using options like  AirBnB to turn their properties into short-term rentals are big topics. And a backdrop for all of this is that construction is not only down, but in many European cities faces a semi-hostile regulatory environment. From the report:
"Some of Europe’s most fashionable cities are indeed facing a ‘housing gap’: a large number of people wanting to live in these cities in order to benefit from the education, jobs, lifestyles and cultural life that they offer. At the same time the buoyant demand for property in some of Europe’s most popular cities has also attracted investors, many of whom seek to establish property portfolios. Given that land in urban centres is a finite resource, such an increase in demand may result in spiralling property and rental prices (unless adequately regulated). ... In “hedge cities”, prime destinations for global capital seeking safe havens for investments, housing prices have increased to levels that most residents cannot afford, creating huge increases in wealth for property owners in prime locations while excluding moderate- and low-income households from access to homeownership or rentals due to unaffordability. Those households are pushed to peri-urban areas with scant employment and services ..."
Europeans are quite likely to report that their cities lack affordable housing. Only in Greece (EL) and Croatia (HR) do a majority of people believe that in their city it is easy to find good housing at a reasonable price. (A list of two-letter country codes is available here.)
It seems to me that American political discourse can sometimes have a tendency to romanticize how life is better in European nations. When it comes to  housing markets, at least, both the US and EU are struggling with a lot of similar issues.

Tuesday, October 17, 2017

Online Dating and Interracial Marriage

Online dating has already altered romance, and it may be on its way to altering society more broadly by changing the way that people from different groups make connections.  JosuĂ© Ortega and Philipp Hergovich provide some evidence and analysis in "The Strength of Absent Ties: Social Integration via Online Dating" (posted online October 2, 2017). Here's some striking evidence that they cite from another paper on the rise of online romance.

The top graph shows heterosexual couples; the bottom graph shows same-sex couples. In each case, the red line that starts shooting up a few years before 2000 shows the share that "met online." Met in "bar/restaurant" has also rise, and one suspect that some of these meetings have an online component as well.Meanwhile, "met through friends," "met in church," and other categories have declined.

The Ortega and Hergovich working paper lays out a mathematical model of marriage matching that will be heavy going for most readers. But much of the intuition behind the model is fairly straightforward. Their focus is on the implications of online-dating for interracial marriage.

Here's a figure from their paper, showing the upward trend in interracial marriage (in this data, marriage of newlyweds) over time. As it explains under the diagram, "The red, green, and purple lines represent the creation of, OKCupid, and Tinder, three of the largest dating websites." They argue that it is not a coincidence that the rate of interracial marriage rises faster than it's long-term trend as dating websites arrive.

A standard model of marriage markets works like this. Those on one side of the market propose marriage to those on the other side. Those who like a proposal they receive can retain their preferred proposal--without actually accepting that proposal. However, all of those who are turned down go make another proposal. Again, those who like the proposal they receive can retain it, without saying "yes," and the cycle continues until no one wants to make any additional proposals. At that point, all those who have retained a desired proposal say "yes." This is an application of the famous Gale-Shapley algorithm, which was part of justification behind the 2012 Nobel price in economics.  In the Ortega and Hergovich, people belong to certain communities, and at first you can only marry someone from within your community. Like the survey results above suggest, you are introduced by friends or an organization like your church. But online dating changes these dynamics. People can reach outside their usual community more easily, and a faster rate of increase in interracial marriage is one of the dynamics.

For a longer-term review of patterns related to interracial marriage, a useful starting point is Roland G. Fryer Jr., "Guess Who’s Been Coming to Dinner?Trends in Interracial Marriage over the20th Century," in the Spring 2007 issue of the Journal of Economic Perspectives

My suspicion is that online dating affects marriage patterns in other ways, too. For example, people have become more likely to marry others with similar educational and socioeconomic background, as I discussed in "Marriage: Homogamy or Heterogamy?" (January 12, 2016).

Monday, October 16, 2017

Learning, Not Just Schooling: World Development Report 2018

The World Development Report 2018, one of the flagship reports of the World Bank, focuses on the theme "LEARNING To Realize Education's Promise." The thrust of the report is that school enrollments are up dramatically in developing countries across the world, but in a disturbingly high number of cases, the larger numbers of children attending school are not leading to a similarly high increase in actual student learning.

For example, here's a figure showing rises in school attendance by region, over the long run. Primary school attendance has become almost (if not quite) universal around the world. Secondary school attendance is rising sharply in Sub-Saharan Africa and South Asia.
But as the report says at the very start (footnotes omitted):
"Schooling is not the same as learning. In Kenya, Tanzania, and Uganda, when grade 3 students were asked recently to read a sentence such as “The name of the dog is Puppy,” three-quarters did not understand what it said.1 In rural India, just under three-quarters of students in grade 3 could not solve a two-digit subtraction such as 46 – 17, and by grade 5 half could still not do so. Although the skills of Brazilian 15-year-olds have improved, at their current rate of improvement they won’t reach the rich-country average score in math for 75 years. In reading, it will take more than 260 years. Within countries, learning outcomes are almost always much worse for the disadvantaged. In Uruguay, poor children in grade 6 are assessed as “not competent” in math at five times the rate of wealthy children. ... 
Although not all developing countries suffer from such extreme shortfalls, many are far short of the levels they aspire to. According to leading international assessments of literacy and numeracy—Progress in International Reading Literacy Study (PIRLS) and
Trends in International Mathematics and Science Study (TIMSS)—the average student in low-income countries performs worse than 95 percent of the students in high-income countries, meaning that student would be singled out for remedial attention in a class
in high-income countries. Many high-performing students in middle-income countries—young men and women who have risen to the top quarter of  their cohorts—would rank in the bottom quarter in a wealthier country."

Here's one of many striking figures along these lines. It shows a share of second-graders who cannot read a single word of text, or who cannot subtract two-digit numbers. The footnotes warn that these figures draw upon individual studies, and the ones in India are focuses on rural areas, so the numbers should not be treated as nationally representative. But national data aren't available, and the evidence from the partial data is worrisome.

Of course, the educational system in any country faces difficulties that the schools alone are ill-suited to address. As the report notes: "[C]hildren often arrive in school unprepared to learn—if they
arrive at all. Malnutrition, illness, low parental investments, and the harsh environments associated with poverty undermine early childhood learning. Severe deprivations—whether in terms of nutrition,
unhealthy environments, or lack of nurture by caregivers—have long-lasting effects because they
impair infants’ brain development. Thirty percent of children under 5 in developing countries are
physically stunted, meaning they have low height for their age, typically due to chronic malnutrition.
The poor developmental foundations and lower levels of preschool skills resulting from deprivation mean many children arrive at school unprepared to benefit fully from it ..."

But with these outside issues and others duly noted, the report is also explicit and clear on the problems of teachers who lack skills and motivation, operating in a system of poor governance. education systems suffering under poor governance.  The report summarizes the needed policy reforms under three categories: 
  • Assess learning—to make it a serious goal. Measure and track learning better; use the results to guide action.
  • Act on evidence—to make schools work for all learners. Use evidence to guide innovation and practice.
  • Align actors—to make the whole system work for learning. Tackle the technical and political barriers to learning at scale.
The report rewards reading with a number of examples of such policies in action. But it's worth noting two broader points as well. One is that the report suggests that lack of inputs to education is not the primary problem in most places: "Public discourse often equates problems of education quality with input gaps. Devoting enough resources to education is crucial, and in some countries resources have not kept pace with the rapid jumps in enrollment. For several reasons, however, input shortages explain only a small part of the learning crisis. First, looking across systems and schools, similar levels of resources are often associated with vast differences in learning outcomes. Second, increasing inputs in a given setting often has small effects on learning outcomes. Part of the reason
is that inputs often fail to make it to the front lines."

The other issue is that all education-related policy reforms happen in a broader context. The report emphasizes over and over that education reforms happen in a context of whether a society is genuinely committed and dedicated to raising the educational performance of its young people. A society that is not committed will find numerous and ever-multiplying reasons to hesitate from any serious action: Can we really measure education outcomes accurately, after all? Is it worthwhile to track students? Might tracking make some students and teachers feel bad? Isn't experimenting with alternatives often a waste of time? Who decides what incentives should be built into the system, and will such incentives be allocated fairly or politically? Can't pretty much anyone teach young children, so there's no need to worry much about training? Shouldn't teachers be able to run their classrooms without outside interference? Shouldn't teachers or principals who have been in place for a long time receive considerable deference to their experience? 

These kinds of questions aren't wrong, or illegitimate. But they can very easily become an excuse for inertia. Only if a society is able to put the learning of children clearly first, in a way that makes flexibility and change imperative, will these kinds of questions turn into ways of usefully shaping new policies, rather than excuses for keeping the same system on track. The report notes various success stories.
"When improving learning becomes a priority, great progress is possible. In the early 1950s, the Republic of Korea was a war-torn society held back by very low literacy levels. By 1995 it had achieved universal enrollment in high-quality education through secondary school. Today, its young people perform at the highest levels on international learning assessments. Vietnam surprised the world when the 2012 results of the Programme for International Student Assessment (PISA) showed that its 15-year-olds were performing at the same level as those in Germany— even though Vietnam was a lower-middle-income country. Between 2009 and 2015, Peru achieved some of the fastest growth in overall learning outcomes—an improvement attributable to concerted policy action."
It's difficult to overstate the importance of education in economic development and growth. To put it bluntly, there are zero examples of countries in the modern world economy that have experienced lasting growth and development without a workforce of growing educational attainment and skills. The report includes various comments like this:
"When delivered well, education cures a host of societal ills. For individuals, it promotes employment, earnings, health, and poverty reduction. For societies, it spurs innovation, strengthens institutions, and fosters social cohesion. But these benefits depend largely on learning. Schooling without learning is a wasted opportunity. More than that, it is a great injustice: the children whom society is failing most are the ones who most need a good education to succeed in life."
It's easy to skim over such statements, and to view them as just another dose of overbroad feelgood boilerplate rhetoric. Except when you read it slowly, it's all true.

Friday, October 13, 2017

Independent Workers and Policy: Krueger's Moynihan Lecture

Alan B. Krueger delivered the annual Daniel Patrick Moynihan Lecture on Social Science and Public Policy, on the topic of "Independent Workers: What Role for Public Policy," for the American Academy of Political and Social Science on May 18, 2017. Video of the roughly hour-long actual lecture, which also shows the slides, is here. A revised and written-out version of the lecture, which I'll draw upon for this post, is posted here as Working Paper #615 for the Industrial Relations Section at Princeton University (September 2017). 

The issue here involves workers who do not have a "traditional" employment relationship: that is,  a job with a given employer and an expectation that the job is likely to continue into the future. Instead, independent workers work for themselves, and earn their living through a series of short-term interactions or time-limited contracts. As a result, they don't receive employer-provided benefits like health insurance, a pension plan, paid vacation, life insurance, and the like. 

How many workers fall into this category? Perhaps oddly enough, some main data sources disagree. Back around 1979, the tax data on people who reported self-employment income and the Census Bureau's Current Population Survey both suggested that about 8% of workers were self-employed. But since then, more people are reporting that they are self-employed on tax data, while fewer people are telling the survey that they are self-employed. On this one, I trust the tax data more! Krueger writes that this divergence "suggests to me that the job market has changed so quickly that many workers are fundamentally confused about the nature of their employment relationship."

Krueger reports survey results that the employer-provided benefit which most concerns independent workers, far and away, is a lack of access to health insurance. While that concern is obviously immediate and foremost in people's minds, I'll add my own belief that many of the independent workers should probably also be quite concerned about longer-term issues, like a lack of retirement savings and a lack of ongoing job-training. What might be done here? Krueger suggests a number of small-scale policies, and one bigger policy. Without passing judgment on them, here are some of the options, with small-scale possibilities first:
"One policy proposal that has gained some traction is to have a carve out for intermediaries that permits them to provide benefits without risk that their contractors will be deemed employees. Indeed, my sense is that many of the new online intermediaries would like to provide some benefits to their workers but they refrain from doing so because they are worried that they will be classified as an employer if they provided access to benefits, such as life insurance. ...
"For the self-employed, however, health insurance expenses are excluded from income taxes but not from payroll taxes. With payroll taxes of around 15 percent, this creates a significant additional tax on the self-employed. That could easily be rectified through tax policy.

"As mentioned, the self-employed receive relatively little job training. The IRS is tough on the deductibility of training expenses for the self-employed. Particularly when it comes to safety-related training, it would make sense for the IRS to be more permissive in allow training deductions as a business expense. Congress could also enact tax credits to encourage job training, particularly for safety training, for self-employed workers. ...

Extend coverage under Title VII of the Civil Rights Act of 1964 to independent contractors. The self-employed currently have few options if they face discrimination. The arguments in favor of this proposal are obvious: (1) it would extend protections that already exist for employees to the self-employed; (2) discrimination is plainly unfair and economically inefficient if it originates from personal animus or ignorant stereotypes; and (3) there is an administrative system in place to enforce the policy. ...

Here’s a really ambitious, big idea: Hanauer and Rolf (2015) have proposed the idea of `Shared Security Accounts,' in which all workers would be covered by a universal system that provides health insurance, retirement benefits, paid leave, and so on. Employers and online platforms like Uber would contribute 25% of their workers’ compensation into a fund to pay for those benefits. Workers could choose which benefits they want. ... I should also note that Shared Security Accounts are not a total head-in-the-sky idea. Washington State and New Jersey have considered legislation along these lines for self-employed workers.
When thinking about public policy for such workers, Krueger describes some of  his objectives this way: 
  • Policy should be neutral with respect to self-employment vs. traditional W-2 employment (e.g., tax treatment of health insurance should be equivalent).
  • Policy should avoid creating incentives for employers to convert W-2 jobs into self-employed jobs. ... 
  • Self-employed workers should be covered by the same essential protections and benefits as W-2 employees (i.e., social compact applies equally).
It should be noted that these objectives are debatable. For example, consider a household with two adult workers: one has a job with health insurance, pension, and all the rest, while the other is an independent worker without such benefits. It's not obvious that public policy should seek to assure the same benefits for both workers. But it is obvious that if public policy does not make some efforts in this direction, we will end up--either when independent workers don't have a partner to provide benefits, or when our hypothetical two-person household separates or divorces--with a substantial number of workers who lack health insurance, life insurance, and retirement saving. If or when this happens, it will be a problem for the political system, not just for those workers. Better to think about some ways to address these issues in advance. 

Readers who would like more on the "gig economy" and independent jobs might start with these posts: 
(Full disclosure: Krueger was the Editor of the Journal of Economic Perspectives, and thus my boss, for the six years from 1996-2002.)

Thursday, October 12, 2017

The Lost US Lead in Education

In the middle of the 20th century, the US economy had the enormous advantage that its workforce was by far the most skilled in the world. That advantage has largely dissipated. Alexander Monge-Naranjo of the St. Louis Fed provides some basic facts in the short article "Workers Abroad Are Catching Up to U.S. Skill Levels" (Regional Economist, Third Quarter 2017, pp. 6-7). The underlying data here is from Robert Barro and Jong-Wha Lee, "A New Data Set of Educational Attainment in the World, 1950-2010," Journal of Development Economics, 2013, Vol. 104, pp.184-98.

Here's a comparison for 1950, showing what share of the workers in each country are in a given education group. The US is the light blue bars on the right of each cluster. Notice that the light blue bars are typically lower in the lower education categories, but higher in the higher education categories. Also, if you do a bit of mental addition, you see that countries like France, Germany, Japan, and South Korea had two-thirds or more of their population in the broader category of "primary school education or less" circa 1950.

The next comparison is different in two ways. It looks at data for 2010, and it focuses only on workers in  the 25-35 age bracket. By leaving out older workers, the focus is on what education level workers are likely to have in decades ahead. The light blue bars showing the US levels of education have clearly risen, but the other countries are now much more similar. Even in cases where a country like Germany looks lower in college degrees, it's worth remembering that Germany has an aggressive and far-reaching apprenticeship program that help to provide future workers with job-related training. One can of course raise the possibility that those South Korean college degrees might not be equal in quality, on average, to US college degrees. But the size of the changes is so enormous that quibbling over quality is not going to alter the main pattern.

The catch-up in education levels is also apparent, if not as pronounced, in emerging market economies. Here's a similar figure, for workers age 25-35 in 2010, comparing the US to emerging market economies of Brazil, China, India, Mexico and Russia.

I suppose there are a few themes to draw from this.

First, catch-up in education levels by the rest of the world is broadly a good thing, because it's a good thing for a range of reasons from economic to self-determination when more humans have a higher level of education.

Second, 1950 was a unique time, and it's implausible that the US would have maintained its status of dramatically higher education levels indefinitely.

Third, with those previous points acknowledged, the US has not done a good job in the last half-century of fostering the incentives, institutions, and culture that would have helped it to keep a lead in human capital. I'm not talking only or even mostly about the public schools here, but about the many contexts in which schools, colleges and universities, employers, and individuals make decisions about providing and working on their education.

Those interested in more details about the ongoing loss of the US position as the clearcut world leader in an educated workforce might be interested in a couple of previous posts:

Wednesday, October 11, 2017

Snapshots of the Global Robotics Industry

The International Federation of Robotics is an industry group. Each year, it publishes a World Robotics Report, and while you need to pay big money for the full report, the Executive Summary and some illustrative slides are freely available. Here are some snapshots of the global robotics industry, released in the last few weeks from the World Robotics Report 2017.
For industrial robots, "There are five major markets representing 74% of the total sales volume in 2016: China, the Republic of Korea, Japan, the United States, and Germany. Since 2013 China has been the biggest robot market in the world with a continued dynamic growth." Here's the pattern of industrial robot sales in the last 10 years by region.

When categorized by industry, most industrial robots are in the automotive or the electrical/electronics industries.

The stock of robots refers to the total number in service, rather than the sales in a given year. "The total worldwide stock of operational industrial robots at the end of 2016 increased by 12% to about 1.8 million units. Since 2010, the stock has been increasing considerably by 10% on average per year."

How does the number of industrial robots in the US compare to other countries? The answer presumably tells something about the potential for future expansion of the use of robots. One measure is to look at the number of robots in relation to the number of manufacturing jobs. By that measure, the US does not rank among the world leaders. The report explains (footnotes omitted):
"The average global robot density is about 74 industrial robots installed per 10,000 employees in the manufacturing industry in 2016. The most automated countries in the world are the Republic of Korea, Singapore, Germany and Japan. The Republic of Korea has by far the highest robot density in the manufacturing industry since 2010. 631 industrial robots were in operation in 2016 per 10,000 employees. The rate has been increasing from 311 units in 2010 due to continued installation of a large volume of robots since 2010 particularly in the electrical/electronics industry and in the
automotive industry. ... Up to 2009 Japan had the highest robot density worldwide. But since 2010 the Republic of Korea and since 2015 Singapore have topped Japan in this respect. Japan’s robot density has been declining since 2009. In 2016, 303 robots were installed per 10,000 employees in the manufacturing industry.
"The development of the robot density in China was the most dynamic one in the world due to the significant growth of robot installations in recent years. Particularly between 2013 and 2016, the rising rate of robot density accelerated in China, from 25 units to 68 units. Due to the dynamic development of robot installations since 2010, the robot density in the United States increased significantly from 114 installed robots per 10,000 employees in the manufacturing industry in 2009 to 189 robots in 2016."

The raw numbers seem to suggest that there is substantial potential for higher use of industrial robots in the United States, perhaps especially in industries not currently making much use of them. 

There is also a separate category, smaller but faster-growing, of "service robots." 

"It is not possible to estimate how many of these robots are still in operation due to the diversity of these products resulting in varying utilization times. Some robots (e.g. underwater robots) might be more than 10 years in operation (compared to an average life time of 12 years in industrial robotics). Others like defence robots may only serve for a short time. The main applications are: 
  • Logistic systems [that is, automated guided vehicles]
  • Defense robots 
  • Field robots (milking robots)
  • Public relations robots 
  • Powered human exoskeletons 
  • Medical robots. ... 

In professional applications, service robots are already having a significant impact in areas such as agriculture, surgery, logistics and underwater applications and are growing in economic importance. Driven by evolving security threats, there is a growing need to monitor everyday environments, which results in increased and difficult-to-manage workloads and data flows. To help meet this need, robots will play an even greater role in the maintenance, security and rescue market. Robotics in personal and domestic applications has experienced strong global growth with relatively few mass-market products: floor cleaning robots, robo-mowers and robots for edutainment. Future product visions point to domestic robots of higher sophistication, capability and value, such as assistive robots for supporting the elderly, for helping out with household chores and for entertainment."

Robots are coming to the global economy. If you are someone who worries about slow productivity and wage stagnation, as I do, it's a trend to be embraced. Moreover, the US economy and political system has only very limited control over how fast the robots come. If robots aren't embraced here, it will in no way stop them from being embraced elsewhere around the world. New technology involves change, pretty much by definition, but over time, the best course of action is to figure out how to work with the change.

Tuesday, October 10, 2017

Formal Jobs and Decent Work

Most people in the world work for some kind of private-sector business enterprise. The quality of these jobs varies enormously: for example, working for a medium or large and well-established employer in the US or another high-income country is a lot different from working for a small informal employer in a low-income country. The International Labour Organization explores the importance of formal enterprises to provide decent work in its recent report, "World Employment and Social Outlook 2017: Sustaining enterprises and jobs – Formal enterprises and decent work." It begins (footnotes omitted):
"Private sector enterprises account for the bulk of global employment: in 2016, 2.8 billion individuals were employed by the private sector, which represents 87 per cent of total employment, with the remaining 13 per cent in non-market services. Although pr
ivate enterprises’ share of employment differs across countries, a strong private sector is the foundation for growth, job creation and poverty reduction. ... While it is true that private sector enterprises are a major source of employment – 87 per cent of total employment, as stated previously – this includes employment generated by informal enterprises, which can be substantial, especially for some developing and emerging economies. According to ILO estimates, about half the world’s workforce is employed in the informal economy, the bulk of which isin the emerging and developing world."
The "nonmarket services" to which the report refers are "the common public sector (education,
health and social services, public administration and defence)."

A key insight of the report is that most employment in the formal sector of most countries occurs in large companies. Specifically companies with more than 100 employees make up 10% or less of total firms, but are typically 50-60% of formal sector employment. 

There does seem to be evidence that the share of employment as small and medium enterprises is rising modestly, from about 31% of total formal employment jobs in 2003 to more like 34% at present. In a number of countries, smaller firms may also function as a way for women to enter the (paid) labor force. 

But in some ways, the line between small, medium, and larger firms can be a little artificial. A friend of mine used to say: "You know what most small companies do? They sell to bigger companies." The point was that large firms make choices about what to do inside their company, and what to hire from outside the company--which in turn affects the opportunities for small and medium enterprises. There are certainly plenty of cases where a large firm drives smaller competitors out of the market, but there are also plenty of cases where a contract from a big firm is what gets a smaller firm off the ground. 

The policy challenge in many countries across the world is how to encourage the aspects of firms that provide decent employment and goods and services to buyers, while discouraging the anticompetitive or exploitative possibilities of firms. The report refers to the need of firms for "numerical and functional flexibility"-- meaning the ability to adjust quantities of workers, hours worked, worker training, and the production process in response to shifts in market conditions. The hard question here is one that is arising in labor markets all over the world, not just in emerging and developing economies. 

Extremely flexible jobs are often part-time or short-term or both. In this setting, employers don't worry much about putting time and resources into training workers: after all, those flexible workers might not be there next month or next week. Production processes are designed for interchangeable low-skill or maybe medium-skill workers. As a result, highly flexible job markets can also be markets which don't invest much in improving the skills of workers. As the report notes: "Particularly in the case of women, but also among youth, flexibility can come at the cost of lower wages and limited opportunities for career advancement ..." 

Indeed, the ILO report offers evidence that while informal jobs are more common in developing countries, if one focuses on the formal sector, part-time and temporary jobs are more common in developed economies. In addition, the report notes that while share of firms that provide training to full-time formal-sector employees is higher in developed economies, it is still not the most common practice.

The ILO report points to some evidence that firms which offer more training to employees also have higher profits, but of course, this correlation doesn't prove that if all firms offered training to employees, they would all have higher profits. Similarly, the report offers evidence that firms which export tend to be more productive and pay higher wages, but again, this correlation doesn't prove that if all firms tried to export, they would all pay higher wages. 

The underlying challenges here are a difficult ones. In a number of countries around  the world, especially in Africa, the Middle East, and south Asia, the working age population is still growing substantially. In these countries, a key social question is how to encourage or facilitate (or at least not to block) the growth of a very large number of private-sector employers. The US economy has also suffered in the last couple of decades from a slowdown in the rate of formation of new firms. 

An intertwined question is the incentives that a labor market provides for ongoing training and education. If firms do not perceive that a substantial numbers of employees are likely to remain for a period of years, then firms will not perceive it as worthwhile to spend time and energy on training employees. But prospective employees will have a hard time knowing what training would be useful to firms, and perhaps also a hard time raising funds to pay for the training themselves. As I've argued here in the past ("What is a `Good Job?' April 5, 2016), many people would like a job that offers a degree of stability and security, along with building skills so that over time you can assume greater responsibilities and receive higher pay. In our current economic environment, with the high value that it places of flexibility, thinking about the labor market institutions and practices that would help create this kind of decent work is a hard and necessary task.